Then-State Treasurer Tate Reeves stood in the Florence Middle School gymnasium in February 2011 and made a promise to the crowd gathered there in his hometown: If they elected him lieutenant governor, he would be “the state’s fiscal watchdog.”
“I have never forgotten my job is to look out for taxpayers,” Reeves said as he announced his candidacy. “If you believe this state is the best place to start and grow a business in America, then I’m your candidate. If you believe we need conservative money management that spends less, borrows less and taxes less, then I’m your candidate.”
Many candidates for statewide office have run on the same principles, but few have delivered quite like Reeves. While Gov. Phil Bryant and House Speaker Philip Gunn have strongly supported the tax cuts since 2012, Reeves has led the Republican leadership’s charge in passing and implementing them.
Since he took office in 2012, Reeves has spearheaded 51 tax cuts or breaks for corporations and individuals, totaling at least $577 million.
Another way to look at it is that $577 million figure – compiled by Mississippi Today using projections from the Legislative Budget Office and the Department of Revenue – has been lost from general fund revenue collections since the current Republican leadership took office in 2012.
And that $577 million isn’t the entire picture of the impact of tax cuts. The two state agencies could only project revenue impact for 21 of those 51 laws which granted tax breaks, meaning revenue collections in the past five years and in future years could suffer millions more as a result of the tax cuts.
Democratic leaders in the state have continually said those tax cuts essentially give away millions of dollars that could be spent on general fund budget needs like education, infrastructure or health care. Reeves dismissed that logic in an interview with Mississippi Today.
“I would reject the notion that we are giving anything to corporations,” Reeves said. “We are simply choosing to take less than what the Democrats, who were in control for 100-plus years, chose to take from them.”
The current fiscal year has been marked by four mid-year budget cuts and withdrawing the statutory maximum from the state’s largest reserve fund in order to offset low revenue collections. Already, Bryant has cut $171.2 million from agencies’ budgets this fiscal year, and he has withdrawn the maximum $50 million from the Rainy Day Fund — a total of $221.2 million.
Tax cuts passed since 2012, in this fiscal year alone, have reduced general fund revenue by at least $324 million. So without those tax cuts, none of the $221.2 million in budget cuts and transfers ordered by Bryant would have needed to occur.
Lawmakers in March finalized a budget for next fiscal year that is, coincidentally, about $329 million less than what lawmakers planned to spend in the current fiscal year — within $5 million of this fiscal year’s known revenue loss from tax cuts.
The $324 million drop in revenue this fiscal year from the tax cuts is almost twice the additional $175 million that Gunn wanted to spend for roads and bridge repairs across the state.
That push for extra transportation spending spurred an argument between the House and the Senate (led by Gunn and Reeves, respectively), which led to the Legislature’s failure to pass an annual appropriation for the Department of Transportation. That appropriation will now be taken up at a June 5 special session.
The tax cuts given since 2012 – a vast majority to corporations, directly, rather than individuals – range from tax breaks for companies who employ veterans to tax breaks for developers of malls to tax breaks for oil exploration off the Gulf Coast.
But three massive tax cuts passed since 2012 make up a majority of the lost revenue:
• Reeves and the Republican leadership got to work quickly in the 2012 legislative session, passing a multi-million dollar corporate inventory tax break. In the current fiscal year alone, according to legislative projections, Mississippi lost $126 million in revenue from that tax cut.
• In 2014, the Legislature passed another multi-million dollar tax cut that lowered interest rates for corporations which pay taxes and changed some methods of collecting taxes. This fiscal year alone, the state lost $76.7 million from that change.
• In 2016, Reeves led an effort to pass the single largest tax cut in the state’s history, which will reduce taxes by at least $415 million in 12 years by gradually eliminating the corporate franchise tax and the 3 percent bracket for individual income tax. That tax cut will phase in over 10 years, starting on July 1. For next fiscal year, Mississippi will lose $18 million from that cut, but by fiscal year 2022, the effect is projected to peak at $70.8 million in lost revenue annually.
Reeves’ position is that cutting taxes for corporations stimulates the economy and ultimately benefits Mississippi’s residents.
Reeves told Mississippi Today his philosophy is corporations themselves don’t pay corporate taxes. Instead, Reeves said, a corporation’s consumers bear those taxes through higher prices for products and a corporation’s employees pay the taxes because their wages and benefits are lower than they otherwise could be.
If corporations are charged less by the state, Reeves said, then those corporations can use the savings to expand capital investment within the state, and corporations’ consumers and employees will have more of their own money to spend inside the state.
The fiscal philosophy of the entire Republican leadership, as they’ve passed the tax cuts, is that fewer and lower corporate taxes mean the state has a better chance to attract and retain corporations. That focus earned Reeves and Gunn the Washington-based Tax Foundation’s Outstanding Achievement in State Tax Reform award in February.
None of the neighboring states of Arkansas, Tennessee and Alabama levy such a high franchise tax as Mississippi. When the Mississippi Legislature voted to phase out the corporate franchise tax, Louisiana did not have the tax. Since Mississippi’s law passed last year, Louisiana has implemented a corporate franchise tax under Democratic Gov. John Bel Edwards.
“If we have a tax that our four closest competitors don’t have, if we try to recruit business and industry to Mississippi, if we have a cost of doing business that they don’t have, it puts us at a competitive disadvantage,” Reeves said. “Again, all of these cuts generate more economic activity in Mississippi. More economic activity leads to better jobs, more taxpayers, and ultimately, more revenue collected.”
But in recent months, the state’s collected revenues have lagged behind projections. Mississippi has met revenue projections just three months of the past 20.
The state budget is built each year based on economists’ revenue projections. When those projections are not met, Bryant must make mid-year budget cuts — as he did four times this fiscal year and twice last fiscal year — to state agencies which provide public services.
Last fiscal year, the state fell short $145.7 million of its revenue projections, ultimately collecting $22.2 million less in total revenue in fiscal year 2016 than in did in fiscal year 2015.
Sales tax and individual income tax collections grew about 1.5 percent respectively last fiscal year, but corporate income tax and corporate franchise tax collections decreased by $117.8 million, or 16.5 percent.
Now, for the first time since 2012, state spending plans for the next fiscal year are lower than the previous year’s initial spending plan as passed by the Legislature. The budget for next fiscal year, which begins July 1, is around 6 percent less than what lawmakers voted in 2016 to spend during this current fiscal year.
Reeves and other Republican leaders prefer to compare next fiscal year’s spending to what the state actually spends in the current fiscal year.
Using that model, factoring in the four mid-year budget cuts and Rainy Day Fund transfers, Mississippi will spend about 0.5 percent more next fiscal year than it has this fiscal year. Of course, only time will tell if those spending plans for FY 2018 will be cut because of unrealized revenue projections and thereby altering the comparison.
Many state agency heads are bracing for even more cuts as revenues continue to miss marks. The Department of Mental Health last week announced it will eliminate 650 positions by the end of next fiscal year. In March, the University of Mississippi Medical Center cut 195 jobs to offset state funding shortfalls.
Democratic leaders have railed against the spending approach of Republican leaders in recent months, labeling the state’s economy in “crisis” and decrying tax cuts and calling for them to be scaled back.
Sen. David Blount, D-Jackson, said in a Democratic Caucus meeting this past session that “reckless tax cuts” passed in years past will have a negative and lasting effect for years to come.
“The budget situation that we’re in today is a direct result of bad decisions by the Republican leadership, and it could have been avoided,” Blount said. “The only way to turn it around is to revisit some of those decisions.”
There were several efforts during the session to delay the July 1 implementation of the corporate franchise tax cut passed in 2016. House and Senate Democrats filed resolutions late in the session that would delay the cuts for one year.
Even Rep. Becky Currie, R-Brookhaven, joined a handful of her colleagues when she spoke out in favor of pushing back a more than $400 million tax cut passed last session.
“The budget looks terrible and I am of the belief that we should put off the franchise tax break that begins January of 2018,” Currie wrote in a March Facebook post. “We could be financially responsible and just put it off until the economy comes back which it will.”
Reeves, who campaigned on lowering state spending in addition to lowering taxes, said he is “utilizing tax policy to decrease the rate of growth of government spending.”
To back up that statement, Reeves points out that Mississippi will spend about $1.1 billion more next fiscal year than it did the year before he became lieutenant governor. Spending is not being reduced, but slowed, he says.
“My Democrat friends in the House and Senate believe that government is entitled to 100 percent of everything you or any corporate entity makes, and that anything that government allows you to keep, you ought to be happy about,” Reeves said. “Well, I believe government doesn’t have anything that it doesn’t first take from somebody else.”
Reeves acknowledges that when the state cuts taxes, there are no benchmarks corporations must meet to ensure that capital is invested into Mississippi’s economy. State officials must trust the companies will invest that money back into the state.
When asked if he will continue to focus on passing tax cuts during the remaining two-and-a-half years of his current term as president of the Senate, Reeves expressed confidence in what Republicans have passed since 2012.
“I don’t know of an optimal level of taxation that we’re trying to get to,” Reeves said. “I’m not going to say I will never push for more breaks which encourage long term economic activity, but I feel like what we’ve accomplished in the first six years puts us in a position that we can compete for more capital and better and higher paying jobs for the next 10 years.”