March 15,
2006
TO THE MISSISSIPPI STATE SENATE:
GOVERNOR'S
VETO MESSAGE FOR SENATE BILL 3084
I am returning SB 3084: "AN ACT TO AMEND SECTION
27-69-13, MISSISSIPPI CODE OF 1972, TO INCREASE THE EXCISE TAX ON CIGARETTES;
TO AMEND SECTION 27-65-75, MISSISSIPPI CODE OF 1972, TO INCREASE THE PERCENTAGE
OF SALES TAX COLLECTED ON RETAIL SALES OF SUCH FOOD WITHIN MUNICIPALITIES THAT
IS DISTRIBUTED TO MUNICIPALITIES, AND TO REQUIRE A PORTION OF THE MONTHLY
TOBACCO TAX REVENUE TO BE DEPOSITED IN THE EDUCATION ENHANCEMENT FUND AND THE
SCHOOL AD VALOREM TAX REDUCTION FUND; TO AMEND SECTION 27-69-31, MISSISSIPPI
CODE OF 1972, TO PROVIDE FOR A DISCOUNT ON THE ADDITIONAL FACE VALUE OF STAMPS
PURCHASED TO COMPLY WITH CERTAIN CIGARETTE EXCISE TAX INCREASES; TO CREATE A NEW
SECTION 27-65-26, MISSISSIPPI CODE OF 1972, TO IMPOSE A SEPARATE SALES TAX LEVY
ON RETAIL SALES OF CERTAIN FOOD FOR HUMAN CONSUMPTION AND TO REDUCE THE SALES
TAX RATE ON SUCH FOOD; TO AMEND SECTION 27-65-17, MISSISSIPPI CODE OF 1972, IN
CONFORMITY THERETO; TO IMPOSE A FEE ON NONSETTLING-MANUFACTURER CIGARETTES; TO
REQUIRE MONTHLY REPORTING OF THE NUMBER AND DENOMINATION OF STAMPS AFFIXED TO
PACKAGES OF NONSETTLING-MANUFACTURER CIGARETTES, THE NUMBER OF INDIVIDUAL
PACKAGES OF NONSETTLING-MANUFACTURER CIGARETTES SOLD OR PURCHASED IN THIS STATE
OR OTHERWISE DISTRIBUTED IN THIS STATE FOR SALE IN THE UNITED STATES AND ANY
OTHER INFORMATION THE STATE TAX COMMISSION CONSIDERS NECESSARY OR APPROPRIATE
TO DETERMINE THE AMOUNT OF THE FEE IMPOSED BY THIS ACT OR TO ENFORCE THIS ACT;
TO REQUIRE REGISTRATION OF NONSETTLING MANUFACTURERS WITH THE ATTORNEY GENERAL;
TO REQUIRE DEVELOPMENT, MAINTENANCE AND PUBLICATION BY THE ATTORNEY GENERAL OF
A LIST OF NONSETTLING MANUFACTURERS THAT HAVE CERTIFIED THEIR COMPLIANCE WITH THIS
ACT; TO PROVIDE FOR ENFORCEMENT OF THE REQUIREMENTS IMPOSED BY THIS ACT; TO
GRANT PROTECTIONS FROM CIVIL LIABILITY TO NONSETTLING MANUFACTURERS THAT COMPLY
WITH THE PROVISIONS OF THIS ACT; AND FOR RELATED PURPOSES" without my
approval and assign the following reasons for my veto.
After full consideration, I am vetoing Senate Bill 3084,
which proposes to reduce the sales tax on groceries and increase the tax on
cigarettes. Senate Bill 3084 is the
latest attempt by the Legislature to change the state revenue stream in the
middle of tremendous financial uncertainty in the wake of Hurricane
Katrina. Reliable, accurate information
needs to be developed through proper research before such a tax shift is
enacted, but this research has not been done.
In the first week of this session of the Legislature, the
Senate passed Senate Bill 2310, with the promise of revenue neutrality for the
state General Fund and for our cities and towns, and the House soon
followed. Before I could act on this
bill, the House Ways and Means Committee realized the claim was inaccurate and
passed House Bill 1140 to increase the level of reimbursements to the
municipalities, at the expense of the General Fund. However, even the higher reimbursements of House Bill 1140 were
not enough to keep the municipalities whole.
I vetoed Senate Bill 2310 on January 18, 2006, because it
would have resulted in a loss of some $1.5 billion revenue to the state over
nine years and would have cut sales tax revenues to municipalities by more than
$150 million over nine years. These
revenue losses would have inevitably led to lower funding for education and
basic services as well as to tax increases, ranging from municipal ad valorem
taxes to sales tax increases on products other than groceries to higher income
taxes.
After I vetoed Senate Bill 2310, the Senate passed the first
version of Senate Bill 3084, again with the claim of revenue neutrality for
both the state General Fund and for our cities and towns. The same day, the House passed a different proposal,
House Bill 1634, also claiming revenue neutrality. To the credit of the House, House Bill 1534 was the first of the
four pieces of legislation which actually held municipalities harmless from the
effects of the risky tax swap. However,
this was achieved by an increased diversion from the General Fund, and
therefore, a larger reduction in state revenue.
The conference report of Senate Bill 3084 is now the fifth
version of the tax swap the Legislature has considered, and its proponents
again claim it is revenue neutral. This
legislation would cut the sales tax on groceries from 7% to 3½%; increase the
excise tax on a pack of cigarettes from 18 cents to 80 cents on July 1, 2006,
and from 80 cents to $1 on July 1, 2007; and establish an additional fee of 43
cents/pack on cigarettes produced by manufacturers which did not participate in
the tobacco settlement in the 1990's, in exchange for immunity from future
lawsuits. The fee on the non-settling
manufacturers would increase each year by at least 3%.
Senate Bill 3084 as sent to me is not revenue neutral. It will result in lost revenue to the
General Fund, and the revenue reduction will increase in the out years. In this time of financial uncertainty, when
we continue to seek additional federal assistance to help us recover and
rebuild from Katrina, it is irresponsible to cut our own tax revenue, no matter
how well intentioned.
In each version of these tax proposals, the supporters of
the tax swap concept promise revenue neutrality, but they still do not take
into account factors which will cause a net revenue reduction over time. The Legislature is relying on figures
supplied by the State Tax Commission, but as its Chairman has pointed out
repeatedly, the State Tax Commission has no expertise in estimating future
revenue growth rates. Therefore, its
estimates are in current dollars and do not take into account the fact that
Senate Bill 3084 would replace a growing revenue source (sales tax on
groceries) with a declining revenue source (cigarette tax).
For example, when the supporters of this bill claim it is
revenue neutral, they claim the sales tax on groceries will generate the same
amount of revenue five years from now as it generates today. The possibility of that happening is
virtually zero. Sales tax collections
have increased 5% each year over the last ten years.
When the supporters of this bill claim it is revenue
neutral, they claim that a 10% increase in cigarette prices will cause a 4%
reduction in taxable packs sold.
However, they do not take into account the recent history of declining
smoking rates in Mississippi and across the country. Last week the Washington Post reported that "Americans
smoked fewer cigarettes last year than at any time since 1951, and the nation's
per capita consumption of tobacco fell to levels not seen since the early
1930's." Nationally, smoking
declined 4.2% in 2005 alone and declined 20% in the last six years.
Cigarette smoking and tax revenue have been declining in
Mississippi in recent years, with no change in the tax. Cigarette smoking and tax revenue from
cigarette sales will decline at a much faster rate if the tax is raised as
proposed in SB 3084. Indeed, that is
the chief goal of many of the bill's supporters, which is a worthy goal. Yet the legislative proponents greatly
underestimate this reduction in tax revenue, which must explain why no fiscal
note for the bill, setting out the revenue estimate, was provided beyond years
one and two. Every year going forward
the reduction in revenue – the loss to the state's programs – will be greater
and greater. This is bad policy,
especially now.
Last week, when I testified before the Senate Appropriations
Committee about Mississippi's needs to recover and rebuild from Katrina, I was
asked if our state has cut its taxes and its state revenue in the aftermath of
the hurricane. I was told publicly this
question had been asked of the Committee.
Because of my veto of SB 2310, I truthfully answered that we had not cut
our taxes or our revenue. After today's
veto, that answer will still be accurate.
Beyond all the other reasons I've mentioned, this bill must
be vetoed if we are to have any credibility when we seek the assistance of the
federal government and the American people in our recovery and rebuilding. Any legislator ought to recognize that is
true.
I remain opposed to raising anybody's taxes, but even those
who disagree should see why this bill must be vetoed.
If the Legislature would like to have a study to determine
the details of our revenue collections, I will go along. The fact is, the State Tax Commission has
consistently said it does not even know the amount of sales tax collected on
groceries today, so it (and no one else) cannot say if a different revenue
stream would be sufficient to replace the sales tax on groceries.
Knowing the facts is critical before making a decision that
involves hundreds of millions of dollars a year – money that citizens depend on
for schools, colleges, law enforcement and other state services. Knowing the facts is even more crucial in a
time of uncertainty, in which we Mississippians find ourselves.
We do not need to add to that uncertainty by enacting the
latest version of a tax scheme just because it may be politically popular.
For these reasons, I urge the members to sustain the veto
and reject Senate Bill 3084.
Respectfully Submitted,
Haley Barbour
Governor