President and CEO of the Mississippi Economic Council Scott Waller speaks during MEC's Capital Day 2019 at the Jackson Marriott Thursday, January 10, 2019. Credit: Eric J. Shelton, Mississippi Today/Report For America

As lawmakers study eliminating Mississippi’s personal income tax and raising sales taxes in an effort to spur economic growth and jobs, state business leaders told them they either oppose or have trepidation about the plan.

The penultimate moment came late Thursday, in the second day of hearings for a joint House and Senate Tax Study Committee. Scott Waller, president of the state’s chamber of commerce, told lawmakers that no business leaders have voiced eliminating income taxes as a priority, but some fear it could have unintended consequences. Waller addressed House Speaker Philip Gunn — who’s leading the charge to eliminate the personal income tax — and members of the tax study panel.

“Where is this in the priorities we have?” Waller said. “We’ve been on the road, holding 39 meetings with members all across the state. I know you don’t want to hear this, Mr. Speaker, but this issue (personal income taxes) has not come up a single time as a priority, something we want to do.”

Waller said the state’s business community is more focused on workforce development and education, improving infrastructure, marketing the state and “keeping people here” — stopping the loss of population and “brain drain” in Mississippi, one of only three states to have lost population over the last decade.

Other business leaders testifying on Thursday included representatives of associations for manufacturers, auto dealers, manufactured housing, and restaurants and hospitality businesses.

Restaurant Association Director Pat Fontaine, in a prepared statement to the panel, said a sales tax increase would result “in a reduction in the frequency of dining out, or the decision to eat at home” and the proposed plan “would not benefit members of our industry at this time.”

The two days of tax hearings Wednesday and Thursday are in response to Speaker 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. His plan, which passed the House but died in the Senate without a vote in this year’s legislative session, would also cut the sales tax on groceries in half, from 7% to 3.5%.

READ MORE: Speaker Philip Gunn struggles to garner support for income tax-sales tax swap

Gunn says his plan will give a net tax break to a vast majority of Mississippians while creating a better tax structure and being “revenue neutral” for the state budget while eventually cutting taxes overall by more than $740 million. He points to nine states without personal income taxes, including Florida, Tennessee and Texas, seeing large population and economic growth.

But others say the plan could hamstring the state budget, unfairly shift more tax burden onto the state’s low- to moderate-income families and retirees with higher sales taxes and hurt many businesses.

Waller said one concern business leaders have is that the state’s main incentives programs for luring new businesses include individual income tax credits for new jobs created — which would disappear with no income tax. He said there is also concern that limited liability corporations and other “pass through” types of businesses pay taxes through the owners’ personal income taxes. Eliminating the tax could leave the remaining “C-corp” businesses shouldering the tax burden, or cause many businesses to switch their formations, which could skew the projections on the tax change not hurting the state budget.

Lawmakers over two days heard from several economists, state budget officials and national tax think tank experts.

On Thursday, noted tax cut advocate and founder of Americans for Tax Reform Grover Norquist told the panel that there is a “wave,” particularly among red states, of cutting or eliminating income taxes. He said Mississippi needs to seize the opportunity to be near the front of the pack to reap economic rewards from such a change.

“Pretty soon nobody’s going to be further than a hop, skip or jump from a no income tax state,” Norquist said. “The question is, do you want to be early on that?”

Most of the tax think tank experts testifying in the Mississippi hearings this week stopped short of endorsing Gunn’s specific plan. But Norquist said he supports it. He said that even though it includes increases in sales and other taxes, it is a net cut.

“It’s a fine bill, and it’s a step forward from where you are now,” Norquist said. “… It’s much better than what you’ve got now, and it’s a very good place to start.”

But Kyra Roby, with the nonprofit One Voice that advocates for marginalized and vulnerable communities across the South, said Mississippi’s tax code is already regressive, with poor people and those of modest means paying more of their income in taxes than the wealthy. The proposed shift from income to sales taxes will exacerbate that, she said, and provide more of a tax break for the wealthy.

A study of data compiled by the Institute on Taxation and Economic Policy for One Voice showed disparity in taxation is worse for Black families, which pay an effective tax rate of 8.7% of their income compared to white families, who pay 8.2%. Hispanic families pay an effective rate of 9.1%.

READ MORE: Mississippi tax laws place higher burden on people of color

Roby told lawmakers that even with the accompanying grocery tax cut, the proposed plan would mean an increase in taxes for the bottom 60% of Mississippi taxpayers and reduction for the top 40%.

Roby said the $1 billion surplus in the state budget — largely due to federal government pandemic spending — should not drive talk of income tax elimination. Increased revenue should be used to help Mississippi’s ailing education, health care and infrastructure and should be driving talk of raising the minimum wage, passing a state equal gender pay law and Medicaid expansion.

“A budget surplus indicates the state has more money than anticipated,” Roby said. “It does not mean it has more than it needs.”

But Russ Latino, with the conservative Empower Mississippi group, said: “If it is not prudent to have the conversation about (tax cuts or elimination) now, when we are sitting on a $1 billion cushion, then it will never be prudent.

“We are in a pivotal place in this state,” Latino said.

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Geoff Pender serves as senior political reporter, working closely with Mississippi Today leadership on editorial strategy and investigations. Pender brings 30 years of political and government reporting experience to Mississippi Today. He was political and investigative editor at the Clarion Ledger, where he also penned a popular political column. He previously served as an investigative reporter and political editor at the Sun Herald, where he was a member of the Pulitzer Prize-winning team for Hurricane Katrina coverage. Originally from Florence, Mississippi, Pender is a journalism graduate of the University of Southern Mississippi and has received numerous awards throughout his career for reporting, columns and freedom of information efforts.