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Just two days before a key legislative deadline, Gov. Tate Reeves confidently stated that lawmakers would vote to eliminate the state income tax that generates about one-third of Mississippi’s general fund revenue.
Reeves, who has little legislative power during the regular session, stopped short of saying that he would call a special session or veto budget bills or other items if legislators do not send him an income tax elimination proposal. But those actions would be the governor’s primary leverage in any battle with lawmakers.
“I am prepared to do whatever it takes to eliminate the income tax in Mississippi,” the first-term Republican governor said. “We are going to work together over the next several days to get this done … We are going to eliminate the income tax in Mississippi.”
Reeves made his declaration Thursday during a press availability in his state Capitol office as legislators prepare to enter key negotiations on developing a budget and finalizing other major proposals. Work is expected to continue on the budget and other key bills through the weekend to meet key deadlines as the session’s scheduled April 3 conclusion nears.
The House has been on board with Reeves’ goal to phase out the income tax. Speaker Philip Gunn has cited the elimination of the income tax as his most important priority and has presented several proposals toward that end.
But Senate leaders, led by Lt. Gov. Delbert Hosemann, have stopped short of complete elimination of the income tax, which is the state’s second largest revenue source. Senate leaders have instead proposed an alternative proposal that merely cuts the income tax and would still be the largest tax cut in state history.
Gunn, in an effort to reach a compromise with the Senate on Wednesday, offered his latest proposal to the Senate — a more modest plan to phase out the income tax $100 million per year, meaning it would take 18 years or longer to complete.
“While I appreciate the House’s attempt to get compromise, their plan of $100 million (cut) in year one is way too little, and their 18 years to implement it is way too long,” Reeves said.
Gunn said the plan to phase out the income tax $100 million per year is not what he wants, but that he is trying to reach a compromise with the Senate.
Of Reeves’ proclamation that the income tax elimination proposal would pass this year, Gunn said: “Here we are two days from deadline, and we see his (Reeves’) first proposal. My question is, ‘Where are his votes?’”
Gunn said he would support the governor calling an immediate special session if a compromise is not reached by this weekend, which is the deadline during the regular session to agree on the issue.
On Thursday, Reeves proposed cutting the income tax by $600 million during calendar year 2023 by dropping the top marginal rate from 5% to 3.5%. He said that would reduce everyone’s tax liability by about 30%. Under his proposal, the 3.5% marginal rate then would be reduced one-half of a percent per year until it is eliminated. Mississippi currently has three tax rates, though the 3% rate is being phased out under a bill passed in 2016, meaning that there would be a rate of 4% on income above $5,000 and 5% on income above $10,000 minus exemptions. Under Reeves’ plan, there would be only a 3.5% rate as of 2023 that would be reduced one-half percent each year.
Reeves said Mississippi is experiencing unprecedented growth in tax collections. Mississippi’s financial experts, the governor said, are projecting the state will collect about $1.2 billion more in revenue than the $5.8 billion that was budgeted during the 2021 legislative session for the current fiscal year.
“It is time to give that money back to the taxpayers,” Reeves said.
State Economist Corey Miller and others have cited the unprecedented amount of COVID-19 federal relief funds coming into the state as the primary reason for the large surge in revenue collections. He said most other states are experiencing similar tax collection booms.
Because revenue collections are not expected to continue at their current pace, Hosemann said it would be more prudent to look at tax cuts, but not to totally eliminate the income tax.
“The Senate has proposed $439 million in recurring-dollar tax cuts on top of the $235 million ($674 million total) which has yet to be phased in from the 2016 cuts,” Hosemann said in a recent statement. “This is a conservative plan to return money to taxpayers. During the many hours we have spent with the House on this issue, we have not said we do not support ever eliminating the income tax in Mississippi.
“We can address further cuts at any time,” Hosemann continued. “Taxpayers expect us to be responsible stewards of tax dollars. The Senate’s plan includes cutting taxes and taking care of core government services — not gutting them.”
Past proposals from both the House and Senate also have cut the 7% grocery tax, which is the largest state-imposed tax on food in the nation. Reeves has not advocated cutting the grocery tax, but said he would not oppose it as long as the income tax is eliminated in the process.