Speaker Philip Gunn’s latest proposal to phase out the state income tax and to reduce the sales tax on groceries was quickly passed out of the House Ways and Means Committee on Tuesday.
The bill — a variation of which Gunn introduced last session and touted as the most important legislation of his political career — would also raise the general sales tax from 7% to 8.5% and decrease the tax on car tags by 35%.
While there are several differences in this year’s proposal and Gunn’s plan that passed the House last year and died in the Senate, the key distinction is that there are no longer increases on the sales tax on large items such as farming equipment, automobiles, manufacturing equipment and other items. These items are taxed at less than the 7% general sales tax rate. Last year’s plan offered by Gunn increased the tax on those items by 2.5% on each $1 as it did on the items taxed at 7%.
Rep. Trey Lamar, the House Ways & Means chairman and close Gunn ally, acknowledged the opposition from farmers, manufacturers and others to those increases in last year’s proposal. The only increase in this year’s bill is on the 7% sales tax that is levied on most retail items, and it goes up 1.5%.
The entire package will result in a tax cut of about $1.5 billion in today’s dollars when the income tax is totally eliminated in an estimated 10-12 years.
“It is a simpler bill than what we dealt with last year,” Lamar said, pointing out the bill would result in the largest tax cut in state history. He also indicated he might ask the full House to vote on the proposal as early as Wednesday.
In the committee meeting on Tuesday, Lamar spent about five minutes explaining the bill. No questions were asked. It passed on a voice vote with no debate.
Republicans hold more than the three-fifths supermajority needed to pass tax proposals without Democratic support. But there is the possibility some Democrats might vote for it.
“I am going to read it and see what it is about,” said Rep. Robert Johnson, D-Natchez, who did not rule out voting for the package.
Last week on the opening day of the 2022 session, Gunn pledged that his proposal to eliminate the income tax would be his top priority. But Lamar pointed out as the Ways and Means Committee was meeting Tuesday that the House Appropriations Committee was meeting across the hall to pass an “historic” teacher pay raise.
Lamar said there is money to do both because of last year’s unprecedented 15.9% revenue growth and anticipated double-digit growth for the current fiscal year.
The tax cut proposal would eliminate the taxes on the first $40,000 of income for an individual, and $80,000 for a married couple in January 2023. The initial cut would save a married couple $2,600 and about half that amount for an individual.
Then the remaining income tax would be phased out during the coming years based on several factors, such as the size of state spending and inflation. It is estimated the phase out could be completed in as little as 10 years.
In addition, the 7% sales tax on groceries, the highest state-imposed tax on food in the nation, would cut to 5.5% in July and eventually cut to 4%.
“The end result will be a tax structure that rewards work and is fairer to everybody,” Lamar said.
Both Gov. Tate Reeves and Lt. Gov. Delbert Hosemann, who presides over the Senate, have voiced support for tax cuts during the 2022 session. Reeves has proposed eliminating the state income tax, which accounts for about one-third of state general fund revenue, in as quickly as five years. The governor has said he would oppose any plan that raises the rate on other taxes, like Gunn’s plan would do.
Hosemann has not been specific other than to say there would be a Senate proposal. He did indicate last week that he is not as interested in phasing out the income tax as Gunn and Reeves are.
“I think you find our plan to be multi-dimensional,” Hosemann said. “We are not hung up one specific thing that says we eliminated something.”
The plan offered last year by Gunn placed a larger increase on sales taxes to offset the cut in the income tax and on groceries. Because of state revenue growth, Lamar said it was determined that as large of offsets were not needed.
In addition the 35% cut on the car tag was added because of complaints about the high costs of license plates. That tax is imposed by the counties. Lamar said the counties would be reimbursed by the state for the revenue they lose from the reduction in the car tag tax.