After much anticipation and some griping from the other side of the Capitol, the Mississippi Senate on Wednesday released its tax-cutting proposal.
It nearly mirrors what Lt. Gov. Delbert Hosemann, the Senate’s presiding officer, said six weeks ago the plan would look like.
It’s more cautious than the tax overhaul the House has already passed. In that aspect alone, the Senate has offered a superior plan.
Rather than eliminating the personal income tax, as the House and Gov. Tate Reeves want, the Senate proposes to continue trimming it. Already in the process of being reduced to 4% by next year, the Senate would keep slicing the tax rate annually until it reaches a flat rate of just under 3% in 2030.
On the grocery tax, the Senate is also more cautious. It would cut the sales tax on groceries to 5% next summer and leave it there. The House plan is to reduce it to 4.5% initially and then make more cuts later until the tax leveled out at 2.5%.
In order to pay for the deeper cuts and not penalize cities, which depend on a share of the state sales tax to operate, the House would offset some of this by allowing both cities and counties to adopt a 1.5% local sales tax, including on groceries. Thus, while groceries would see a net decrease under the House plan, chances are the sales tax on everything else would go up. The Senate has no local sales tax option.
Although both the House and Senate agree that the Mississippi Department of Transportation needs a larger stream of revenue in order to catch up and keep up the maintenance of roads and bridges, they disagree on how much more money is needed and the best way to get it from fuel purchases. The House would add a 5% sales tax on fuel, or roughly 15 cents a gallon on what gasoline has been costing. The Senate wants to instead increase the excise tax, which has been stuck at 18.4 cents a gallon since 1987, by 9 cents over a three-year period. The Senate would also peg the fuel tax going forward to inflation, so that the state would never again go almost 40 years without an increase, which is what created the current bind.
The bottom line is the House plan, if all of its phases were implemented, would result in a net reduction in taxes of $1.1 billion annually. The Senate measure is about a third as large.
The two sides are certain to argue about the details of their respective plans, but the overriding question is which one’s total price tag is more prudent. The House assumes that Mississippi’s post-COVID jump in tax revenue is sustainable; the Senate is not so certain.
The Senate is probably right.
Mississippi, like most of the country, saw its economy take off, after a brief initial dive, during the COVID-19 pandemic, mostly as a result of the boatloads of borrowed money that Congress sent to individuals, businesses and government entities to avoid an economic collapse. Not only has the pandemic relief money dried up, but the new Trump administration is trying to implement funding cuts to pay for more or continued tax relief at the federal level. Mississippi, one of the largest beneficiaries per capita of federal spending, is bound to feel the effects of any belt-tightening in Washington. Also, previous rounds of tax cuts in Mississippi are still being phased in, and indications are that whatever growth the state is seeing in sales-tax collections will not offset what has been cut from business and income taxes.
Until there is more clarity, it is best to be cautious about additional tax cuts. That way, if those with the bullish economic projections turn out to be wrong, the spending cuts to state agencies and programs won’t have to be so severe to balance the budget.
