The Legislature's Joint Tax Study Committee wrapped up two days of hearings Thursday as lawmakers ponder massive changes to the state's tax code, including the elimination of the state's personal income tax.
Mississippi would become the 10th state without an income tax. Florida, Tennessee and Texas are the only states in the region that lack a income tax.
Gov. Tate Reeves said in a post on Facebook that he hoped that lawmakers would realize that eliminating the state's income tax is needed and that the tax burden on Mississippians across the board needed to be reduced. He also said that he doesn't support eliminating the income tax by commensurate increases in sales, agriculture or any other taxes.
“The overwhelming weight of testimony over these last two days is we as a state are going to be better off economically, citizens' prosperity wise, anything we can do better for the citizens of our state from a financial standpoint to eliminate the state income tax and put more money back into their pockets,” said House Speaker Philip Gunn.
The initial proposal that Gunn drafted that passed the House this past session would've phased out the state's income tax while increasing the sales tax from 7 percent to 9.5 percent. The Senate let the bill die in committee and also excised an amendment attached to a bond bill that would've done basically the same thing as the original House bill.
The state's personal income is assessed at the rate of zero on the first $3,000 of taxable income, 3 percent on the next $2,000, 4 percent on the next $5,000 and 5 percent on all taxable income exceeding $10,000.
Revenue from the income tax (more than $709 million in fiscal 2021) accounted for only 7.45 percent of the revenues collected by the state Department of Revenue. Sales tax accounted for 36.1 percent of all revenues collected ($3.44 billion). In fiscal 2020, sales tax ($3.22 billion) accounted for 39 percent of revenue collected while the income tax added up to 4.29 percent. That skew was likely affected by the COVID-19 pandemic.
Looking at numbers from fiscal 2019, sales tax revenues ($3.12 billion) represented 38.2 percent of all DOR collections while the state income tax ($490 million) added up to 5.85 percent.
Estimates using last fiscal year's collections and 2020 numbers show that increasing the state's sales tax rate to 9.5 percent would've resulted in an additional $1.23 billion in collections for sales tax (fiscal 2021 numbers) and $1.15 billion in fiscal 2020.
Of the more than $9.5 billion in tax collections by the DOR in fiscal 2021 (which ended on June 30), about 69 percent of those monies are deposited in the state's general fund. About 17.5 percent of those revenues go to municipalities.
Those numbers were up considerably from the year before, with income tax collections increasing from $350 million in fiscal 2020 to $709 million, an increase of 102.4 percent.
All revenue collections were up by 16.53 percent overall.
Grover Norquist, the founder of Americans for Tax Reform, addressed the committee Thursday about the advantages of scrapping the state's income tax. He said the state was on the forefront of a wave of 12 red (Republican-majority) states that have cut income tax rates. Arizona is phasing its income tax down to 2.5 percent and later zero, while North Carolina is in the process of phasing out both its personal and corporate income taxes. North Dakota and West Virginia have, like Mississippi, had income tax phaseout bills pass one chamber of their legislatures.
Norquist said the example of Kansas, which is cited as a cautionary tale after its income and other tax rates were cut and state revenue bottomed out, happened because of a lack of offsets (spending cuts and tax increases elsewhere). He also said a state court decision also increased spending at the state level as well.
He also said that Kansas was the 40th lowest state in terms of economic growth from 1998 to 2012, when the cuts were enacted. The state improved to 30th from 2012 to 2015, when tax cuts were eliminated by lawmakers.
“It did spur growth. It did spur jobs,” Norquist said. “But what they didn't do was rein in spending.”
He advises spending caps and triggers to prevent the issues with Kansas' tax cuts. He also said that Kansas lawmakers will be back in two years with possible tax cuts along with a spending cap.
Not everyone supports the proposal. Scott Waller, the president and CEO of the Mississippi Economic Council, the state's chamber of commerce and largest business group, told the committee that eliminating the income tax “wasn't a top priority among our members.”
Kyra Roby, a policy analyst at One Voice, told the committee that eliminating the state's income tax would shift the tax burden disproportionately on the poor, especially African-Americans and Hispanics. She urged lawmakers to raise the state's income tax, eliminate loopholes in the corporate taxes and add an inheritance tax while cutting the state's tax on groceries, which isn't paid by those in the Supplemental Nutritional Assistance Program, better known by its old name of food stamps.
Last year's bill, House Bill 1439 also known as the Mississippi Tax Freedom Act, would’ve set new deductions for both individuals ($47,700) and married couples ($95,400). The implementation of these exemptions would’ve been phased in over time and tied to state revenues in the general fund and the rate of inflation. Once fully implemented, all income up to these levels would’ve no longer been subject to the state’s income tax.