JACKSON • Would the Legislature’s income tax elimination proposal help or hurt Mississippi’s economy? How about the average Mississippi taxpayer?
It depends who you ask – and which economic report you decide to read.
At least five reports have been released in recent days that specifically examine the legislation proposed by Republican House leaders, or a tax cut similar to it.
Here’s what each of those economic reviews found – but first, a quick overview of the plan itself.
What would House Bill 1439 do?
House Bill 1439 raced through the chamber on Feb. 23, winning approval on an 85-34 vote only a day after it was unveiled.
Authored by House Speaker Philip Gunn and two other top Republicans, the bill is now under consideration in the Senate, where it’s expected to face considerably more opposition. The Senate leader, Lt. Gov. Delbert Hosemann, says he is highly skeptical of the legislation.
The proposal would phase out the state income tax within about a decade and cut the state’s 7% tax on groceries in half. To make up for those losses in revenue, it would increase the sales tax on most items from 7% to 9.5%.
Taxes would also go up on several other items, including farm and manufacturing equipment, alcohol and tobacco – all in an effort to balance out the huge revenue loss of eliminating the income tax.
The legislation would gradually exempt a larger share of income from being taxed each year. In 2022 up to $50,000 would be tax-free, and that number would increase to cover the state’s highest earners within a decade.
However, the phaseout would be paused if the state doesn’t meet specific revenue goals. That means a 10-year goal of eliminating the income tax could ultimately take several years longer.
Here’s what experts say about the House proposal, or similar Mississippi proposals to eliminate income taxes:
University of Mississippi economists
A study out this week from Ole Miss economics professors Joshua Hendrickson and Ronald Mau found the legislation would increase Mississippi’s gross domestic product by $371 million each year. It said the tax cut proposal would be “close to” revenue neutral for the state budget. And it said eliminating the income tax would encourage savings and investment by Mississippians.
Gunn praised the report, saying it proves that his proposal is “based on sound tax policy.” He said the proposal would “reward work, saving and investment, and will increase the size of our state economy, all while maintaining the revenues we need to satisfy priorities.”
A recent report from the conservative think tank said under legislation similar to the House bill, “productivity would increase and both the economy and consumption would measurably grow.” The report’s authors broadly recommend several of the same provisions included in the House proposal, though they also said a proposal that did not include increasing sales taxes considerably was feasible.
The analysis found under a tax phaseout model similar to the House proposal, Mississippi could see more than a 2% increase in GDP, and similar uptick in consumption. The study also pointed out that states without income taxes generally have more health economies than Mississippi.
Institute on Taxation and Public Policy and One Voice
The lowest 60% of earners would pay more taxes under the House plan, while the highest 40% would pay fewer, according to an analysis conducted by the left-leaning Institute on Taxation and Public Policy for the Mississippi advocacy group One Voice. Someone who makes $23,000 would pay $270 more under the plan due to increased sales taxes, though someone in the top 1% of earners, making $924,000, would save $28,610 under the plan because of the income tax cut, the analysis said.
Kyra Roby, a policy analyst for One Voice, was quoted in the Associated Press as saying that the income tax is “the only fair portion of the state’s tax system ... because it requires wealthier individuals to pay their fair share.” She said a state revenue shortfall resulting from the legislation could result in cuts to important areas such as education and health services.
Gunn and the bill’s other authors said they based the legislation in part on recommendations from the Tax Foundation, a conservative Washington, D.C. think tank. But a recent analysis from the group urged caution with the legislative proposal. It said the plan was “bold,” but warned that it could create issues for some businesses by hiking taxes on things like farm equipment, manufacturing equipment and commercial electricity.
The tax hikes could force these businesses “to raise consumer prices or reduce employee jobs or wages in response,” wrote the authors of the report. They also raised concerns about the lack of a fiscal note attached to the bill, which would equip lawmakers with “a detailed understanding of the bill’s revenue implications to inform further deliberations.”
Mississippi Institutions of Higher Learning economists
An analysis from State Economist Corey Miller and Sondra Collins, a senior economist with IHL, examined general proposals to eliminate the income tax – a version where sales taxes are increased, and one where they are not. Gov. Tate Reeves has proposed eliminating the income tax without compensating using increased sales taxes.
The analysis said under Reeves’ phaseout proposal, state revenue would drop by more than $1.7 billion annually by 2035. In addition, the authors found, GDP, personal income and the state’s population would all gradually decrease under Reeves’ plan. It would also mean almost 12,000 fewer jobs in the state by 2035.
But if the income tax phaseout was coupled with an increase in sales tax, the report said, there would be positive effects. It would raise GDP, personal income, employment and population from 2022 to 2035.
What happens now?
Senate leaders, including Hosemann, have expressed skepticism about the legislation. Hosemann says more research is needed and concurred with the Tax Foundation recommendation that a fiscal note be attached to the bill.
He said Thursday that Miller, the state economist, recently sent him a draft report that analyzes the House plan. Though Hosemann said he was still sifting through Miller’s findings, in general the state economist did not agree with several of the economic projections advanced by House leaders to justify the cuts.
“It doesn’t appear to agree with other numbers that have been circulated,” by the House, Hosemann said of the economist’s report.
The lieutenant governor hasn’t ruled out approving the House legislation – but suggests it will look drastically different if the Senate approves it.
But time is running out: Tuesday is the deadline for the Senate to advance the legislation, and the session is scheduled to end April 4. The legislation will first need to clear the Senate Finance Committee, expected to meet Monday.
Hosemann said he did not want to “precast” how the chairman of that committee, Sen. Josh Harkins, R-Flowood, may feel about the House proposal. Hosemann said he and Harkins planned to meet and discuss it Friday.