Mississippi Gov. Tate Reeves has not backed away from his desire to eliminate the income tax that individuals pay in this state.
Even though two previous rounds of tax cuts, one that is still being phased in, will lower the rate to 4% and increase the threshold before the tax even kicks in, Reeves says that’s not enough.
He wants Mississippi to join the nine states without a personal income tax.
But can the state afford it, since the personal income tax presently accounts for a third of the state’s general fund budget?
It depends on whose numbers and assumptions you believe.
Those who back Reeves’ plan — or at least some of it — say there is still plenty of surplus to spare. If the Legislature can hold spending relatively flat, they say, the state will have a recurring surplus of almost $1 billion a year. Enough at least to lower the 4% flat rate to 3%. And to those who say that there’s no way that spending will level off, tax-cut proponents respond that it will if the surplus is used to reduce taxes rather than to fuel greater spending.
Others say their numbers tell a different story. They say that Mississippi’s record surpluses have been a temporary windfall, the result of inflation and massive amounts of federal dollars that were poured into this state and all the others during the COVID-19 pandemic. They say that Mississippi erred by using this windfall to make tax cuts, which are recurring reductions in revenue, rather than tax rebates, which are one-time reductions. And they predict that it won’t be too long before the wheel turns and the surpluses disappear, leaving Mississippi and a bunch of other states in a budget bind, having to either reverse some of these tax cuts or severely crimp services.
One side calls for a leap of faith, believing that tax cuts will generate population increases and economic growth. Those, in turn, will bring in additional revenue to the government from other sources, such as the sales tax, more than offsetting what is lost in income taxes.
The other calls for caution, saying let’s see how the past tax cuts play out first. And they say there are so many unmet needs remaining — in education, health care, public safety, etc. — that the state would get a better long-term return by using any remaining surpluses to address these needs rather than cutting income taxes further.
That argument makes the greater sense. Mississippi’s tax rate is not onerous even before the most recent reduction fully kicks in. Of the 40 states with an income tax, it’s in the lowest quarter. When the rate drops to 4%, it should be near the bottom. With as much uncertainty as there is, that’s low enough for now.
