Policy groups are deeply divided over a proposal to phase out Mississippi’s personal income tax, with some saying the change could spur economic growth and others saying it could curtail funding for schools and other essential services.
House Bill 1439 plowed through the Republican-controlled state House on Feb. 23, a day after it was introduced. The 85-34 vote was largely along party lines, with only a few Democrats joining Republicans to support it and only one Republican joining Democrats in opposition.
Speaker Philip Gunn said the proposal would create a fairer system by putting larger taxes on consumption and smaller ones on productivity.
The bill would phase out the income tax, cut the 7% grocery tax in half, increase the sales tax on most items from 7% to 9.5% and increase taxes on other items, including tobacco, alcohol, farm implements and manufacturing equipment.
Empower Mississippi is a Jackson-based group that advocates for limited government. It supports phasing out the state income tax, and it had prepared an analysis of that standalone proposal before the House came out with the more complicated plan that included some tax increases.
“Something you’ll hear from almost every public finance scholar who studied it, wherever they are on the political spectrum, is that good tax policy consists of low rates and broad bases,” one of the authors of the Empower study, Joseph Bishop-Henchman, said during a Feb. 25 presentation.
The Empower report showed that Mississippi’s economy has been largely stagnant for the past decade, and eliminating the income tax could attract entrepreneurs. The group’s president, Russ Latino, is another of the study’s authors. He said the nine states without an income tax have seen faster revenue growth than Mississippi.
“In those states, there’s been both real economic growth in the private sector and population growth that leads to economic growth,” Latino said.
Kyra Roby is a policy analyst for One Voice, a Mississippi-based group that advocates for housing, education and civil rights for disadvantaged groups. During a presentation March 4, she said the income tax is “the only fair portion of the state’s tax system … because it requires wealthier individuals to pay their fair share.”
Roby said One Voice wants a “fully funded education system, Medicaid expansion, affordable health care, help for colleges and universities, protection of our library system, an improved criminal justice system and other tax and budget policies that will help working families.”
“A revenue shortfall resulting from this tax bill would make it nearly impossible for Mississippi achieve these goals,” she said.
Wesley Thorpe, the Atlanta-based deputy director of state policy research at the Center for Budget and Policy Priorities, said during the March 4 presentation that Kansas, Maine, North Carolina, Ohio and Wisconsin enacted deep cuts in personal income taxes in the first half of the 2010s amid arguments that the cuts would lead to economic growth. He said four of those five states lagged behind the national averages in jobs and personal income in years that followed.
“Tinkering with state tax rates simply doesn’t appear to have that much effect on where companies and entrepreneurs and talented professionals choose to locate,” Thorpe said.
The Republican-controlled Mississippi Senate is in no hurry to move forward with House Bill 1439.
The House did not provide a fiscal note to evaluate how the proposed tax changes might affect state tax collections. Republican Lt. Gov. Delbert Hosemann told reporters last week that he had asked the state economist to evaluate the proposals.
“I’ve not had one senator come to me and tell me that he wanted to pass this bill,” Hosemann said.
Republican Gov. Tate Reeves has proposed phasing out the personal income tax without increasing other taxes.
The state economist, Corey Miller, and a senior economist for the state universities research center, Sondra Collins, recently published a report that said eliminating the personal income tax could mean that Mississippi’s economic output, personal income and population would “all decline slightly each year from 2022 to 2035,” with the most job losses in local government and slightly fewer job losses in the private sector.