The compromise Mississippi lawmakers reached over the weekend on tax cuts was closer to what the Senate proposed than what the House wanted.
Thank goodness for that.
If it doesn’t work out, it will be a whole lot easier to roll back the tax cuts than if the Legislature had gambled completely on the currently large surpluses continuing.
The tax-cut legislation, which Gov. Tate Reeves indicated he will sign, will over the next four years produce a flat tax in Mississippi, in which all income over a certain threshold will be taxed at 4%. That’s not all that radical a departure.
Unlike the federal system’s progressive taxation system, in which the tax rate rises significantly as income increases, Mississippi’s rates ranged only between 3% and 5% even at their most progressive. The 3% rate was eliminated in a previous round of tax cuts, and these latest changes will eliminate the step to 5%.
When the changes are fully phased in, they will reduce state revenue by an estimated $525 million a year. That’s a lot, but only about one-third as much as House Speaker Philip Gunn’s plan to completely eliminate the personal income tax could have cost.
Lt. Gov. Delbert Hosemann and the Senate rightfully balked at such imprudence, knowing that the bounty currently flowing into the treasury may be an anomaly, since it was fueled largely by the massive amounts of money Congress sent to the states the past two years to ward off a possible national economic meltdown from the COVID-19 pandemic.
Although the caution in the compromise is commendable, it remains bothersome that the chosen avenue of tax relief is not only one of the least onerous in Mississippi’s overall tax structure, but it’s also the portion paid largely by those who can most afford to finance government.
The toughest tax burden in Mississippi is not the income tax. It is the sales tax. This state has one of the highest general sales tax rates in the country at 7%, and it is one of the few states that does not give a break on groceries.
Both chambers initially proposed to reduce the tax on groceries, but that fell by the wayside in trying to work out a deal on income-tax cuts. As a result, Mississippi will continue with an inequitable tax structure that is proportionately harder on those near the bottom of the economic ladder than those near the top.
Gunn and Reeves, even while they signed off on the tax-cut deal, don’t appear to be satisfied. Neither is backing away from wanting to totally eliminate the income tax, and both are likely to make further tax cuts a campaign issue during next year’s election, which could include Gunn running against the incumbent governor in the Republican primary.
No matter the politics, the Mississippi Legislature needs to not make any more major changes to the tax structure until we see how the last two — eliminating the 3% tax and now moving to a 4% flat tax — shake out over the next several years.
The backers of the tax cuts claim the reductions will produce sustained economic growth and a population influx that will generate more revenue, even at lower tax rates. Let’s hope they’re right.
But if they are wrong, if tax collections take a downturn and expenditures don’t, the state will soon be facing a budget crisis of its own making. Let’s be certain that fear is unfounded before increasing the odds that it comes true.
