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In the 2015 legislative session, an election year, the Mississippi House rejected a $555 million tax break proposed by Lt. Gov. Tate Reeves and other legislative leaders.
The fact that the Republican-controlled House voted down the tax cut was surprising because election year tax cuts are normally popular with legislators and because in this super partisan environment the members seldom bulk their leadership.
The 2015 elections occurred against the backdrop of the tax cut as a campaign issue. But in reality, issues, including the tax cut, mattered little during 2015 since the state Democratic Party fielded one of its weakest slate of candidates in modern history and did not have the funds to wage competitive campaigns.
Consider the fact that the Democrats’ nominee for governor was Robert Gray, a nice enough guy, but a candidate who did not care enough to even vote for himself in the primary election because he was at work – making a long haul delivery in his 18-wheel tractor-trailer.
The Republicans won and came back in the 2016 session and passed about a $415 million tax cut, representing about 7 percent of the overall general fund. That proposal included the same corporate tax cut that was in the 2015 plan, costing the state about $245 million annually. But the amount of the tax cut on personal income was reduced from about $300 million in 2015 to about $150 million in 2016.
Corporate groups such as the Mississippi Manufacturing Association put their considerable resources into ensuring legislators who supported its passage were elected. The resources and candidates to argue against the passage of the tax cut were limited.
This year there is, of course, a competitive election for governor between Democratic Attorney General Jim Hood and Republican Lt. Gov. Tate Reeves. On the issue of taxes, Hood has proposed reducing the state’s 7 percent sales tax on food. Many, including Hood, have questioned why the state with the nation’s largest percentage of poor people would have the highest statewide tax on groceries. Most states either exempt the sales tax on food or have a tax on food lower than their levy on other retail items.
During at least one debate, Reeves proposed another cut to the personal income tax. That cut would cost the state roughly $180 million annually, according to the Department of Revenue.
The Department of Revenue estimates that the 7 percent tax on food generates between $267 million and $315 million annually for the state. Hood has proposed cutting in half the 7 percent grocery tax. He also has committed to ensuring municipalities who receive a small portion of the grocery tax would be made whole by the state.
The Hood and Reeves tax cut proposals are being made this election season even though the 2016 tax cut is just beginning to have an impact. According to figures compiled by the Department of Revenue, the 2016 tax cut took a modest $33.6 million out of the state revenue stream in the 2019 fiscal year completed on June 30. For the current fiscal year, its cost is estimated to be $92 million, $150 million for the following fiscal year and $205 million in the next year. The annual cost continues to increase until fiscal year 2028 when it is fully enacted.
Whether it is wise fiscal policy to pass another major tax cut when the state is just beginning to absorb the largest tax cut in the state’s history is perhaps debatable.
Reeves says further reducing the income tax to make the state system “flatter and fairer” should be part of a larger tax overhaul. Hood says the grocery tax cut could be paid for by reducing waste and by ensuring large out of state corporations pay their share.
The corporate tax currently being eliminated as a result of the 2016 legislation is the so-called franchise tax, which is a tax on a company’s capital instead of on earnings.
Many, even those who opposed the 2016 tax cut, concede that the franchise tax is unfair. But the issue is that in Mississippi it is the only state tax many corporations – especially out of state companies – pay. A 2013 study by the Department of Revenue revealed that 111 of the state’s 150 largest companies, in terms of employment, paid no income tax. While the companies were not named, the bulk of those companies not paying are likely large out of state retailers. Some argued in 2016 in favor of enacting a broader tax cut where the franchise tax was eliminated but other taxes were levied on corporations to ensure that some large companies were not escaping paying any taxes. Legislative leadership would not consider that proposal.
It is important to remember that in the four years before the 2016 tax cut passed about 50 other tax cut were approved. In total, more than $700 million in tax cuts (in today’s dollars) have been passed in recent years with the beneficiary of the bulk of those cuts being corporations.