Mississippi House members approved legislation ending personal income tax in Mississippi this week, and economists are warning it will be a budget killer.
“I looked at the fiscal note (on this thing) and they are 100 percent offsetting the cost of these cuts with the revenue surplus that came from federal sources like ARPA (American Rescue Plan Act) money, but they’re not going to be getting that (money) every year. It doesn’t make sense. This is not sustainable,” said Kamolika Das, a policy analyst with the Washington, D.C.-based Institute of Taxation and Economic Policy.
In other words, House Speaker Phillip Gunn and Gov. Tate Reeves plan to use one-time revenue from federal pandemic countermeasures to eliminate the state’s income tax. Last Tuesday, the House Ways and Means Committee quickly passed HB 531, the “Mississippi Tax Freedom Act of 2022” to do just that. Gunn’s GOP-controlled House then speedily approved the bill, possibly before Mississippi seniors and people on fixed incomes could learn how hard the legislation will whack their monthly budgets with new sales taxes.
“(The bill’s) net impact is incredibly regressive,” said Das, who explained that Mississippians who make less than $19,000 and older adults on fixed incomes will be the only groups that will have to pay more in taxes if the bill becomes law.
Mississippi’s personal income tax system—now currently in jeopardy—is hardly convoluted, or onerous. According to Mississippi’s own Department of Revenue, a state resident pays no taxes on the first $3,000 of their taxable income. They pay 3 percent on the next $2,000 after that, and then 4 percent on the following $5,000 they make that year. Everything after that, whether it’s an additional $10,000 or a whopping $200,000, is all taxed at 5 percent. A large percentage of Mississippians are too impoverished to have any taxable income after numerous deductions for filing single, being married and having children, so they will get no extra money from killing the state income tax. A single person making nearly $50K a year may get to put an extra few hundred dollars back in their bank account, but what Gunn, Reeves and others are not talking about is how people making half a million a year will bank most of the savings.
“We found that a third of the net tax change would go to the top percent of earners, and that means people making more than $485,000 in total income,” Das told The Lighthouse. “And if you look at the top five percent—people making more than $200,000—that’s nearly half the tax change.”
The bill will slowly choke $1.5 Billion from the budget, all so the state’s wealthiest can grab roughly half of the benefit. Our reporting shows that the “surplus” the MSGOP is using to justify the tax cut is not a surplus; it is a temporary reservoir of unspent, one-time money that will drain itself within a few budget cycles. After that, the state will be left with a ravenous new tax cut that it will have to feed with historically low annual revenue, which already barely manages to fund K-12 schools and criminal autopsies. The state budget is so traditionally busted that officials are even privatizing their own state parks.
Tax cut opponents, like Parents’ Campaign Executive Director Nancy Loome, warn that the state already can barely afford to pay teachers and keep roads and bridges functional and that removing a significant source of revenue will make Mississippi the next Kansas, which busted its own budget when it decided to kill its state income taxes in 2012 and 2013. The move proved so damaging that Kansas voters removed the governor who’d championed that effort and reinstated income taxes in 2018.
These warnings mean nothing to anti-tax advocates like Americans for Tax Reform founder and President Grover Norquist, who argued for eliminating income taxes at the state Capitol last August. Norquist told committee members last year that the Kansas tax cuts would not have been a disaster had Kansas merely imposed a brutal spending cap.
“The best way to do this (eliminate state income tax) is to install an overall cap, and then the various spending groups can argue with each other as to who’s project is more necessary or how much,” Norquist told legislators. “Nobody looks for waste unless there’s a cap. […] A cap forces the spending interests to compete with each other.”
What Norquist and Gunn don’t mention, of course, is that those various “spending groups” always include state-supported programs like public schools, highways, police protection and countless other services necessary to encourage public health and population growth. Outside a one-time shower of federal pandemic money, Mississippi rarely has the cash to support these programs. U.S. News and World Report ranks Mississippi at No. 50 against all other states in terms of health care, while the United Health Foundation ranks the state last in terms of women’s and children’s health. Regarding population growth, Census figures reveal the state of Mississippi was the only state in the Southeast that actually did not see an increase in population. The state’s population dropped 0.2 percent within the last 10 years, arguably because leaders, like Gunn and Gov. Reeves, don’t stimulate enough amenities, jobs or good pay to attract and retain residents.
House Bill 531 will not easily encourage new residents after raising the current 7 percent sales tax to 8.5 percent—especially not while the nation is already reeling from a 7 percent consumer price index jump over last year, and with inflation hitting a 39-year high. Mississippi Republicans are aware of the pain, of course, because they are hounding President Joe Biden over prices and inflation, even while they work to pass state laws that will aggravate these same issues on a local level.