Statistics On the Tobacco--Grocery Sales Tax Swap

We in the accounting profession have an old cliche': Take a statistic to lunch. So being the CPA that I am and a political buff, I decided to pull some statistics on the tobacco--grocery sales tax swap. I went through the Mississippi State Tax Commission report (www.mstc.state.us) for fiscal year 2005 (Fiscal Year ending June 30, 2006. The fiscal year 2006 report hasn't been issued yet.) for my statistics.

Right now, we have the lowest tobacco tax in the nation. It is true Missouri has a penny less than Mississippi, but municipalities and counties are allowed to assess an extra four to seven cents extra a pack in Missouri (which all the counties and municipalities in that state do assess). We tax cigarettes at an anemic 18 cents a pack. The U.S. median is 80 cents a pack.

While we have the lowest tobacco tax in the nation, we have the highest sales tax on groceries. The state of Arkansas just recently cut its sales tax on food from 6% to 3%. Why can't we do that?

For FY 2005, the state took in $58,118,106 in tobacco taxes. Let us make the assumption the tax is raised an extra dollar a pack. That would make the tax $1.18 a pack. Doing the math, that would bring in $380,996,473 a year, or an additional $322,878,367 a year from the current amount.

There are 6536 food stores in the state (specialty and general). The total sales for these stores was $3,615,576,826. The sales tax collected on those sales was $253,090,629. YOU COULD ELIMINATE THE ENTIRE TAX ON GROCERIES AND STILL HAVE EXTRA REVENUE! Do the math. $322,878,367 minus $253,090,629 gives you a surplus of $69,787,738. For FY 2005, municipalities received $383,170,773 in sales tax revenues from the state. Just giving the surplus to municipalities would increase sales tax revenues to the cities by 18.213%, or up to $452,958,511. That would pave a lot of city streets. Where is the so-called "loss" due to the swap?

I know the argument others would make. More people would give up smoking. OK, fine. For the break even point to hit in the increase in the tobacco tax versus eliminating the grocery tax, smoking would have to go down by 21.614% ($69,787,738 divided by $322,878,367). Smoking is inelastic when it comes to price increases. There would be a small decline, but not much. And certainly not 21.614%.

Another way to ensure municipalities and counties would get more money would be to raise the gambling tax from 8% to 12%, with the increase going solely for municipalities and counties. That would bring in an extra $137,411,636 a year. Since the municipalities receive sales tax revenues and counties don't, I would give 80% to the counties. That would help lower the steep ad valorem taxes on car tags. The municipalities could use those funds for infrastructure.

I do not understand what the fuss is on the tax swap. It would give the poor and the working class a really good tax break. I read on one blog some people would go out of state and spend their tax savings money there. Perhaps so. However, that would be a small number. But unless they are on the border of a state it would be a waste of money (gas ain't cheap) to spend their money there. Also, if we did eliminate the sales tax on groceries, more people would come from Arkansas, Tennessee and Alabama because they still tax groceries. They would spend their money here.

Look over the statistics. If they are wrong, let me know and I'll correct them. But I think the Mississippi State Tax Commission is the best source on sales tax and tobacco revenues. If you have better sources, let me know. Statistics are juicy. Take a statistic to lunch.

As for the Lt. Governor's race, Jamie Franks is absolutely correct on this issue and Phil Bryant is wrong. Why is it so hard to cut such a regressive tax on the necessities of life?