As the Legislature considers eliminating Mississippi’s personal income tax and raising sales taxes, a panel of lawmakers on Wednesday heard about the nuts and bolts of state revenue — which is way up in part due to federal pandemic spending — from state tax and budget officials.
They also heard about broader theories of tax structure and policy from national experts.
“For the nine states without an individual income tax, population growth is more than twice the rate of those with one,” said Jared Walczak of the Tax Foundation. “Why it matters? Whatever we tax, we get less of … A sales tax is a tax on present consumption. An individual income tax, in a way, is a tax on present and future consumption. In some ways it’s double taxation.”
The two days of tax hearings Wednesday and Thursday are in response to House Speaker Philip Gunn’s proposal to eliminate the state’s individual income tax and raise the state’s sales tax from 7% to 9.5%, along with increases in other user or “consumption” taxes. Gunn says his plan will give a big tax break to a vast majority of Mississippians while creating a better tax structure. Others say it could hamstring the state budget, unfairly shift more tax burden onto the state’s poorest and retirees or hurt businesses with more sales taxes.
Gunn’s plan passed the House this year, but died without a vote in the Senate. Senate leaders said they want to further study the issue and vet Gunn’s plan before making such a sea change in taxation, the impetus for this summer’s hearings.
State tax and budget officials told lawmakers Wednesday that revenue came in more than $1 billion over estimate for the last fiscal year and collections continue to run high.
Rep. Hank Zuber, R-Ocean Springs, during the hearing said the choice appears stark to him.
“Revenue is at an historical, all-time high,” Zuber said. “Government has two choices: spend it, or provide some tax relief for people, correct?”
But Sen. Hob Bryan, D-Amory, noted that Mississippi’s top income tax rate of 5% is about middle of the pack for the nation and it’s sales taxes are relatively low.
“There’s no problem with our state tax code,” Bryan said. “It’s about like every other state’s. We do have other problems, though, like with our roads … or getting our names in the paper because we have the lowest vaccination rates and people are going to the co-op to get horse de-wormer. We have an image and infrastructure problem, and I do not think our tax code has much to do with lack of economic development or growth in this state … I would think the prudent thing to do as long as money is coming in is to long term investments in infrastructure.”
House Ways and Means Chairman Trey Lamar, R-Senatobia, said, “Every sign seems to point to this (tax proposal) as a positive, something we could do here, today, in Mississippi for positive growth.”
The joint Tax Study Committee hearing also included Joe Bishop-Henchman of the National Taxpayer Union.
“Structure matters,” Bishop-Henchman told lawmakers about tax policy and changes. “It is very easy when talking about taxes to reduce it to dollars, but a dollar can be raised in different ways.” He said some structures require so much administration, compliance and enforcement costs and volatility that “a dollar raised takes more out of the economy than a dollar.”
But, Henchman said, “It can be done, and it can be done responsibly and fairly.” He said Mississippi eliminating its individual income tax would be “dramatic and would draw attention to the state” and could help growth.
No state has ever phased out an individual income tax. Alaska, the only state to eliminate an existing income tax, did so in one fell swoop. For Mississippi, the shift would be seismic: Individual income taxes usually generate about $1.8 billion a year, or 32% of the state’s revenue.
The tax hearings continue on Thursday. Scheduled speakers include Grover Norquist with Americans for Tax Reform, Kyra Roby with One Voice, Russ Latino with Empower Mississippi, and several state business leaders.
The hearings begin at 9 a.m. in Room 216 at the Capitol and can be watched online on the Legislature’s website.