Don’t forget the state’s tax cut history

Published 4:30 pm Friday, February 18, 2022

As Mississippi’s political leadership bickers about whether to pass the House tax cut plan or the more modest Senate plan or the more outlandish plan of Gov. Tate Reeves, it might be worth remembering that the state is not even halfway into enacting the state’s largest tax reduction plan in history.

In 2016, the state passed a plan to cut taxes by $415 million in 2016 dollars by fiscal year 2028. By the end of the current 2022 fiscal year, about $206 million of that tax cut will have been enacted, according to projections put out in 2016 when the Legislature, led to a large extent by then-Lt. Gov. Tate Reeves, approved the Taxpayer Pay Raise Act.

“I keep telling people that if we do nothing we will have a big tax cut this year,” said Sen. David Blount, D-Jackson.

That 2016 proposal cut the tax on personal income by about $150 million. The rest of the tax cut is going to businesses, with a substantial portion (about 75% according to a 2017 Mississippi Today analysis) going to large out-of-state corporations.

In addition, in the four-year legislative term before the pivotal 2016 session, about 50 tax cuts, primarily for businesses, were enacted at a combined cost of at least $140 million annually, according to data compiled earlier by the Department of Revenue.

Meanwhile, as those tax cuts go into effect and other much larger tax cuts are contemplated, some say Mississippi’s political leaders continue to whistle past the graveyard.

“We are not paying state employees, our roads are crumbling. We have not funded the schools,” Sen. Hob Bryan, D-Amory. said. “We don’t have water and sewer. We can cut taxes and not have a functioning society. That is where we are heading now.”

The Mississippi Adequate Education Program, which provides the state’s share of the basics to operate local school districts, would need $362 million this session to be fully funded — a total of about $45 million more than the current Senate tax cut proposal. The House plan, championed by Speaker Philip Gunn, would cost about $1.4 billion when fully enacted. Reeves’ plan would cost about $1.8 billion.

Since 2007, the last time the MAEP was fully funded, it has been underfunded $3.1 billion. As inflation increases, that shortfall will be even more consequential as the cost of gas for buses and other supplies rise.

While some might see state leaders whistling past that proverbial graveyard, others have a different view.

“… Let’s find a way to get rid of the income tax,” Gunn said. “Now is the time to give money back to the people. We have done everything. We have funded all of the government. We have excess money. Let’s give it back.”

A skirmish, though a respectful one, broke out last week between state House and Senate leaders about the impact of their competing tax plans.

Projections developed by the Legislative Budget Office, at the request of Senate leaders using assumptions on revenue growth and spending based on historical trends, indicate that the House plan would put the state in the red by more than $250 million by fiscal year 2024.

But House leaders counter the Senate projections do not take into account the current, perhaps historic revenue growth.

Truth be known, if the Legislature continues on its current spending path, there would be enough money to enact the first two years of the House plan, which incidentally are the only two that are not contingent on growth triggers to be enacted. The state currently has unprecedented revenue growth thanks to multiple factors, most all related to the economic environment caused by the COVID-19 pandemic.

But 1979 might provide some context for legislators. That year with state revenues way up, as they are now, legislators passed at the time the largest tax cut in the state’s history — reducing the income tax and eliminating the sales tax on prescription drugs and utility bills.

But three years later, recognizing the state’s needs, legislators backtracked and increased the taxes on income and sales to pay for kindergartens, provide teachers a raise and to address other education issues.

Still, for the 1980s, revenue collections remained sluggish, forcing major budget cuts.

Finally in 1992, legislators overrode the veto of then-Gov. Kirk Fordice to increase taxes again — the sales tax from 6% to 7%.

It is questionable at best whether politicians in today’s environment would be brave enough to take the action their counterparts did in 1982 and 1992.

The fear that legislators in today’s political environment would never vote to raise taxes to address needs is the reason many are so afraid of any more tax cuts.

“If that revenue goes away this year, it will never come back,” said Sen. Derrick Simmons, D-Greenville.

 

This analysis was produced by Mississippi Today, a nonprofit news organization that covers state government, public policy, politics and culture. Bobby Harrison is Mississippi Today’s senior Capitol reporter.