Lawmakers want to eliminate Mississippi’s individual income tax — which provides nearly a third of state government’s revenue — in a plan House Speaker Philip Gunn is pushing this election year, as Gov. Phil Bryant and Lt. Gov. Tate Reeves promote their own, more modest tax cuts.
The tax cut proposals are bringing heated, partisan battle, particularly in the House where Republicans hold a relatively slim majority and at least a few Democrats would have to be swayed to pass one.
Republican Gunn on Tuesday said, “If we are going to have a tax cut, we want it to be real, substantial and make significant impact on the lives of those who are paying the tax … Tell me, who is going to vote against putting real, hard dollars into the pockets of their constituents?”
Under the House plan, authored by Rep. Brad Mayo, R-Oxford, Mississippi would no longer have a state income tax by 2030. The plan would first phase out the state’s 3 percent tax bracket by 2019, then the 4 percent bracket by 2022, then the 5 percent bracket by 2030.
The House Democratic leadership decried the plan as election-year Republican pandering that could have dire consequences for the state.
“Think of the lunacy about what you’re about to do,” Rep. Steve Holland, D-Plantersville, said before Ways and Means approved the measure 15-7.
“It’s just one-upmanship from Republican to Republican to see who can get the biggest tax cut,” Holland said, “with no focus whatsoever on the impending needs that we have in public education and road construction and in economic development.”
House Democratic Caucus Leader Bobby Moak, D-Bogue Chitto, in Ways and Means debate brought up Kansas’ income tax cuts, and subsequent state budget problems. The Kansas Legislature in 2012, at Gov. Sam Brownback’s urging, cut individual tax rates by 25 percent and eliminated other taxes on businesses. In 2013, Kansas approved a measure to further cut and eventually eliminate income taxes. The Kansas cuts were some of the largest ever made by a state.
Subsequently, Kansas’ government revenue from 2013 to 2014 dropped by more than 11 percent and its economy has been stagnant. Kansas has cut public education, universities and other agencies even as the national economy recovers from recession and lawmakers there are considering raising other taxes to make up for shortfalls.
But Gunn and Mayo said Mississippi will not face problems similar to Kansas, because of a “growth trigger” in the Mississippi plan.
The plan would cost $21 million next year, then escalate up to $108 million its final year, for a total cost to the state’s coffers of $1.7 billion. But the plan has a growth trigger Gunn says would protect the state budget from catastrophe. The cuts would only go into effect in years that state revenue sees at least 3 percent growth. He says that would more than cover the cost. In years with less than 3 percent growth, the cuts would be on hold.
“Kansas made some lump-sum cuts off the bat,” Gunn said.
Mayo said: “This plan is not based on any other state. It’s Mississippi’s.”
The state’s top Republican leaders now each have a tax cut plan. Bryant has proposed an income tax break for families making up to $52,000 a year, that would cost the state about $79 million. Lt. Gov. Tate Reeves has a $400-million, multi-year plan to eliminate the corporate franchise tax over 10 years. His plan would also provide tax credits for small businesses and eliminate over five years the lowest tax bracket (3 percent), which would give all Mississippians a break of about $150 a year in the final year.
“The Taxpayer Pay Raise Act provides relief for every Mississippi income taxpayer, reduces taxes for businesses on Main Street and cuts the franchise tax paid by both small and large companies,” Reeves said of the Senate plan. “This plan encourages capital investment and promotes long-term economic growth.”
The Reeves-backed Senate proposal passed the full Senate on Tuesday by a vote of 38-9 after brief, heated debate and heads to the House.
“So we’ve decided we have too much revenue here in the state of Mississippi, and we’ve got to cut back on it?” said Sen. Hob Bryan, D-Amory. Bryan said the state has too many needs in public education, roads and bridges and other areas to cut taxes.
The governor’s tax cut proposal is reflected in bills in the House and Senate, but is likely to die with a Wednesday deadline for action on taxing and spending bills. Bryant has said he’s not set on his proposal, but hopes the Legislature comes up with tax cuts this session.
The House is expected to take up the Gunn-backed proposal to eliminate income taxes on Wednesday, the deadline for action on it, after Democrats blocked a move to push the deadline back because of wintry weather. Democrats blocking the weather delay bodes ill for any tax cut passage in the House this session.
A tax cut requires a 3/5 vote, and that may be difficult in the House, where 3/5 of the full House requires 74 votes and Republicans hold 66 seats. Gunn will have to sway some Democrats to get any tax cut passed. Democratic leaders said corporate or income tax cuts that could hinder funding public education or other state services.
Mississippi’s coffers are fairly reliant on income tax. It makes up 31 percent of revenue, or $1.7 billion, second only to the sales tax, with is 36 percent of revenue, or nearly $2 billion. Corporate tax is only 12.5 percent, or $677 million.
Sara Miller, senior policy analyst at the Mississippi Economic Policy Center, said eliminating the state’s income tax would likely result in a “tax shift” instead of a tax cut.
“If we eliminate the income tax, in order to avoid drastic cuts to vital state services like schools and universities, revenue would have to be raised in other ways like sales taxes and property taxes — taxes that his lower and middle income Mississippians especially hard,” Miller said. “… Most other states that do not have an income tax have special circumstances that allow them to collect revenue in other ways, like royalties from natural resources — as in Alaska, South Dakota, Texas and Wyoming — or revenue from major tourism industries, as in Florida and Nevada.”
But Forest Thigpen, president of the Mississippi Center for Public Policy, said the growth trigger sounds like a reasonable safeguard in the House plan. He said both the House and Senate plans have merit, and he supports tax cuts.
“Generally speaking, individuals in Mississippi are going to spend more money in a more productive manner than the government will,” Thigpen said. “… The states with no income taxes are those seeing the most growth in their economies and in job growth. As long as it doesn’t require an increase in sales taxes, then the phase-out of income taxes will not create a more regressive system … An advantage to eliminating the franchise tax is that it encourages more job creation.”
“At this point, I’m just glad they’re looking at ways to allow people to keep more of the money they’ve earned.”
Contact Geoff Pender at (601) 961-7266 or gpender@jackson.gannett.com. Follow @GeoffPender on Twitter.
Read the full article here.
