This article is the third in a three-part series that examines Mississippi’s largest single tax cut in history, which began Saturday, and its projected impact. Click here to read the first installment. Click here to read the second installment.
Mississippi’s largest-ever tax cut will be a boon for the state economy, encouraging current businesses to expand and new enterprises to open operations in the state. And Mississippians will have more money to spend in the long run.
The biggest beneficiaries of Mississippi’s largest-ever tax cut will be corporations rather than individual Mississippians. Tax cuts will drain revenue from a state already struggling to maintain current spending levels for core governmental functions.
Those are starkly different views of the Mississippi Taxpayer Pay Raise Act, which will eliminate the corporate franchise tax, the individual income tax’s 3 percent bracket and certain self-employment taxes over a 10-year period.
Who’s right? Mississippi Today asked several economists and experts in public finance to make their cases. B
elow are their answers, in their own words, edited for relevance and space.
The six experts interviewed:
• Darrin Webb, Mississippi state economist
• Nicole Kaeding, economist at Washington-based Tax Foundation and adviser to Mississippi legislative leaders
• Jay Moon, president of Mississippi Manufacturers Association
• Duane Goossen, former Kansas state economist and senior fellow with the Kansas Center for Economic Growth
• Russ Latino, state director at Americans for Prosperity Foundation – Mississippi
• Sara Miller, analyst at Mississippi-based Hope Policy Institute
Do you think the Mississippi Taxpayer Pay Raise Act will generate enough business and spending activity in the state to fill the revenue hole that will be created by its tax cuts?
Darrin Webb: “I don’t think (the tax cut) will generate enough activity to fill the hole it will leave in revenue. Other states didn’t have (the franchise tax), and it may help (bring some business to Mississippi), but it’ll take an awful lot of companies coming here from other states to get close. It’s not going to create a boon for the economy.”
Nicole Kaeding: “In no way do I think the tax cuts that Mississippi made will automatically pay for themselves. I think the franchise tax cut is pro-growth and a good policy, but that doesn’t mean I think it will be automatically able to generate the necessary revenue to pay for itself. In fact, I agree that it’ll be a revenue loss to the state. However, the phase-out allows the states to make programmatic changes to handle the revenue loss.”
Jay Moon: “You’ll begin to see a robust economy that’s in a growth mode. Along with some changes being talked about in Washington, businesses will have a more competitive environment, hire more people and produce more goods and services. Some people would say we shouldn’t reduce the revenue because of the uncertainty. On the flip side, we have to do what we can to be competitive in the future, or a lot of that prosperity will pass us by and go to another state. It’s a phased-in process. It’s a responsible approach. It gives time for these other benefits to materialize.”
Duane Goossen: “Mississippians should not expect the tax cuts to pay for themselves. That’s what we learned here in Kansas.”
Is this tax cut good for the state of Mississippi?
Russ Latino: “The Taxpayer Pay Raise Act is good, broad-based tax policy that should create a more beneficial environment for growth. That said, there are a profound array of factors that impact any state’s economic future. Anyone who tells you they can look into a crystal ball and see the future while evaluating a single policy in a vacuum isn’t being honest. We see that yearly with inflated budget projections.”
Sara Miller: “Big, unaffordable tax cuts that mainly benefit corporations and the wealthy like this one will actually erode our ability to invest in the kinds of things that do work to support economic growth – things like education and health care to maintain a ready and productive work force and infrastructure improvements to allow businesses to get their products to market.”
Webb: “The leadership in the House and Senate said they were put in office on the platform of lower spending. Is government too big? I would argue that the federal government is too big and hinders economic growth. But on the state level, I’m not sure that’s the case. When you look at revenues related to needs, in my opinion, state government is not necessarily too big. In terms of our needs, we’re the poorest, the least educated, we struggle with providing health care. We don’t have enough relative to our revenue. We have high-level need, and we’re probably too small.”
How will this tax cut benefit everyday Mississippians?
Kaeding: “When that income tax is fully phased in, Mississippians will get $150 back per year. On the self-employment side, once fully phased in by 2019, Mississippians will be able to write off 50 percent of the federal self-employment tax. And cutting the unfair franchise tax will certainly help individual Mississippians long term.”
Webb: “When Mississippi eliminates the 3 percent tax on the first $5,000 of income, no incentive to earn more is created. No matter how much you make, the tax cut will max out at $150. Now, people will spend their tax cut and that will generate sales tax. But this will only partially offset the lost revenue – it will not fully restore it.”
Latino: “For starters, every Mississippi worker will see a reduction in the income taxes taken out of their paychecks. This means more money for gas, groceries and school supplies and more business for local merchants. The elimination of the franchise tax should help everyday Mississippians, too. It is, essentially, a double tax on businesses that choose to invest here. Removing punitive hurdles for job creators is both fair and smart.”
Miller: “Once fully phased in, any Mississippians with taxable income up to $5,000 will receive a tax cut of $150. This is true for folks earning about $25,000 (in a family of four) up to the wealthiest Mississippians. However, many low income working families will not benefit from the tax cut – for example, a family of four earning less than $20,000 annually, despite the fact that they pay more of their income (as a percentage) in state and local taxes through sales and property taxes, will benefit less than wealthy Mississippians.”
How will corporations benefit?
Moon: “We’re going into the first iteration, January 2018, that you will pay $2.50 per $1,000 for assessed valuation in excess of $100,000. Over next 10 years, the franchise tax will go from $2.50 to $2.25 to $2.00 – down a quarter each year of the valuation. We wouldn’t have been advocating it for years and years if the businesses didn’t tell us they wanted to see it addressed by the Legislature. Since we passed it, the people we talk to are saying it’s a really, really good thing. It will help them expand their businesses, more employees, more equipment.”
Kaeding: “At least on the franchise side, this is a literal tax on investment and capital formation. This is a tax on a firm creating more capital in Mississippi. By eliminating this tax, you are not penalizing firms that invest more in the state of Mississippi. That’s why most states have eliminated this tax. Most states do not want to penalize investment in their state. Five states since 2010 that have eliminated this tax. New York is in the process, and next year we’ll add Mississippi. All are phasing it out for the same reason.”
Miller: “Most corporations in Mississippi pay very little in corporate taxes to the state. Corporate taxes make up less than $1 of every $10 collected in general fund tax revenue. Three out of every four corporations in the state pay less than $150 annually in corporate income tax and more than half of corporations (more than 34,000) pay zero. For many corporate taxpayers, the franchise tax is the only corporate tax they have to pay. More than half of corporations who pay the franchise tax (61%) pay no corporate income tax.”
Kansas’ largest-ever tax cut, passed in 2012, lowered annual revenue collections by hundreds of millions of dollars. The Republican-controlled Kansas Legislature recently voted to roll back that 2012 policy after budget cuts crippled the state’s economy and public services.
Do you have concerns that what happened in Kansas could happen in Mississippi?
Goossen: “We put very significant tax cuts in place five years ago, all in one great big swoosh. Those tax cuts were sold as something that could create lots of jobs – an economic jolt to our economy. Second, the tax cuts were supposed to pay for themselves, and the budget would still be fine. And third, the tax cuts would be beneficial across the economic spectrum. Now, five years later, it’s pretty clear that none of those promises came true. Our economic condition is worse than our surrounding states and worse than national averages. They’ve been going down since the tax cuts. Our position has become worse because of the tax cuts. Our budget has been in terrific trouble. That’s the key reason the cuts were overturned.”
Latino: “Making these types of comparisons is dangerously misleading. The dynamics in each state are different and the policies at issue are very different. The phase-in of The Taxpayer Pay Raise Act is prudent to give leaders and our economy time to adjust. Mississippi’s leaders do need to be ready to prioritize core functions and eliminate waste, but the same would be true, with or without tax relief. Our elected officials owe that to the people they serve.”
Miller: “The recent roll back of tax cuts in Kansas was spurred by the fact that big, unaffordable tax cuts like this tax cut about to take effect in Mississippi did not deliver the promised results, cost more than what was estimated and required harmful cuts for schools and other public services the people of Kansas relies on. We don’t have to wonder what the results of our tax cut will be, especially considering the current state budget crisis is in part due to several other tax cuts enacted in Mississippi.”
Kaeding: “I don’t think it’s a concern. I think there’s a few things to keep in mind. What Kansas did was not good policy. There’s a difference between a tax cut and a structural tax change that might or might not cover revenue. Folks in Mississippi shouldn’t be afraid of what happened in Kansas. Instead, I think it should be viewed as a way forward saying, ‘This is what happens when you take good approach to tax policy.’ ”