The latest tax collection numbers in Mississippi are bearing out the more cautious approach several in the legislative leadership say they are taking to future tax cuts.
Five months into the current budget year, total collections for state government are down $42 million from the year before, as the impact of the most recent tax cuts are starting to show. Although that translates into a relatively modest dip of 1.4%, it does strongly suggest that it would be foolhardy at this point to do what Gov. Tate Reeves has long advocated: total elimination of the individual income tax.
The state has already made two major slashes to the income tax since 2016. The latest, enacted in 2022, is into its first year of a four-year phase-in.
It’s so far not doing what the proponents said it would. They claimed the income-tax cut would generate so much additional economic activity that what was lost in income-tax collections would be more than made up in sales-tax revenues. Indeed, the sales tax numbers are up by $50 million, or 4%, so far this fiscal year. But that increase, as healthy as it appears, covers less than half the decline in individual income taxes, which are down $119 million, or 11%.
Reeves and his fellow tax-cut enthusiasts like to use another frame of reference — comparing this year’s collections to what the legislative budget estimated would come in. That comparison looks a lot better — up almost $76 for the year — but it’s misleading. The Legislature typically estimates on the low side in order to try to avoid the trauma of legally required mid-year cuts if collections fall too short of estimates.
The truer picture of how collections are going is comparing them to the year before. The indications from the last several months are that the boom in collections is not just tapering off but starting to come down. Part of that is probably because a lot of the coronavirus relief money flowing in from Washington has now been spent, and part of that is undoubtedly the result of the 2016 and 2022 tax cuts, the earlier of which just finished phasing in last year.
Under current law, Mississippians pay nothing on the first $10,000 of taxable income and 5% on everything above that. By 2026, the rate will be 4%. That’s not zero, but it’s not that high either.
The revenue to operate state government has to come from somewhere. Until the impact from the past tax cuts becomes clearer, a go-slow approach toward additional reductions is the one to take.
