/5 things to know about the Great Mississippi Tax Cut Battle of 2022

5 things to know about the Great Mississippi Tax Cut Battle of 2022

After two years of trying to abolish personal income taxes, the Senate sent this week’s House an austere plan for income tax cuts. Legislators and lobbyists tried to keep other legislation alive, but were worried that it might be killed or taken hostage by the partisans. Philip Gunn, Republican House Speaker, wants a complete overhaul of the state’s tax structure — a phase out of personal income tax and an increase in sales taxes. This position has been supported by conservative tax think tanks from both national and state. Republican Lt. Governor. Delbert Hosemann would prefer a more measured and careful tax cut. He believes the House overhaul is foolish in uncertain and volatile economic times. READ MORE: The Senate is set to approve its income tax cut. House has not budged on its desire to eliminate it. Here are five facts about the Great Tax Cut Battle of 2022. A recap of both plans can be found at the end of this article. Given the differences in the tax cuts plans of the Senate and the House, it might be easy to assume that they would just leave the session with no cuts. But they will try again next year. It’s unlikely, but that’s the reality. It’s a close call for re-election, and no state political leader wants to see a failure in tax cuts hanging around their necks while they campaign — particularly in a Republican primary. First, the Republican governor. Tate Reeves also stated that he wants the income tax eliminated and would most likely call lawmakers back to session about taxes. This would be in Tate Reeves’ political wheelhouse. He could make the issue happen and then claim credit for getting the Legislature to spend less. Hosemann and Gunn would not want that. Gunn also really wants to abolish the income tax. He is not sure if he will run for another term as speaker or governor, but he sees phasing away the income tax as his legacy. Despite their often rocky political relationships, Hosemann has been openly discussing it with Reeves. Hosemann doesn’t seem to be too excited about a tax reduction. Although Hosemann could take it or not, Gunn and Reeves won’t be able to let it go. Politically, it would be almost impossible in ruby red Mississippi to put the tax cut genie back in its bottle. Nobody knows. Mississippi legislators don’t seem to know much about the impact of income tax cuts. This includes a complete elimination of tax. It’s also unclear what the future holds for the state’s economy and the state. First, there are no two analyses or studies — and there have been many — that show the exact same result. Sometimes even the same analysis can produce different results. The Senate and the House have been ping-ponging back and forth with Legislative Budget Office and state economists, as well as other analyses and modeling of income tax elimination. LBO or an economist would present numbers for a while. One chamber wouldn’t like it so they’d make them redo it with new numbers. It is clear that income tax elimination would either destroy the state budget or not. It would either increase GDP, job, and/or decrease the population. READ MORE: Who are the tax leaders in Mississippi? Grover Norquist, or Mississippi business leaders? However, it should be noted that revenue forecasts by state budgeting and legislative leaders in recent years have been quite poor. They are particularly bad at forecasting revenue in volatile economic times and pandemics like this. They have been missing about $1 billion on revenue guesstimating for the past two fiscal years. This is despite having a budget of $6 billion. Some of this is deliberate low-balling. Others are just being incorrect. Although it’s wonderful that the state has “extra”, money, it’s not enough to make their revenue cipherin so poor, especially when they use it to plan a major change in state rates and tax structure. The idea of eliminating Mississippi’s income tax is being promoted by those who believe it will boost the economy like other states. It hasn’t been done in any other state. Eighteen of the nine states without income taxes have never had one. Many of these states have large oil and gas reserves, high property or tourism taxes, or they have other significant revenue streams like tourism, oil, or natural gas. Alaska is the only state that has ever eliminated an income tax. After the Trans-Alaska Pipeline system was completed, which brought in billions of additional revenue, Alaska eliminated all income taxes in 1980. In the mid-2000s, other states tried to reduce or eliminate income taxes. Kansas’s debacle was able to put an end to the Kansas movement. It served as a warning tale about cutting taxes while also cutting spending and banking for growth. As many conservative think tanks support the idea, other states such as West Virginia and Georgia are now considering eliminating income taxes. READ MORE: Kansas Republicans to Mississippi – Use us as a cautionary story One of the strangest arguments about tax cuts and the House elimination plan is that it’s either now or never — Mississippi won’t have the chance again. Wait, what? If a tax reduction or elimination is feasible and sustainable and is based on recurring revenues and sound economic policies, it should be possible — perhaps even more so — next year. Or the next. Or the next. If revenue growth isn’t a one-off, and inflation isn’t going to eat your lunch, our state coffers should be completely full this year. Perhaps then, we would have more solid revenue projections. Some, including Gov. Reeves argues that the future is so bright, the House compensating increase in sales taxes was unnecessary. We can simply eliminate income taxes and all will be well. This would be an unusual acceptance of the Republican state leadership that the Democratic Washington administration will keep the economy afloat and inflation under control. READ MORE: Mississippi Republican Income Tax Bet The argument of now-or-never would seem to be political, with an eye toward the 2023 election — and not fiscal. You could argue that this is the worst time in recent times to reform a state’s tax structure. The world is still reeling from a pandemic. The economic system is being destabilized by trillions of dollars in federal stimulus. The inflation rate has risen to a 40 year high, and there is a possible war in Europe. Although Mississippi’s leaders push tax cuts and argue how large to make them, the state’s leaders don’t propose any reduction in tax dollars. It’s actually the reverse. Both the Senate and House have passed legislation to increase spending on a variety of programs and services by hundreds of millions per year. The biggest is the $200 million per year teacher pay increase. This is another reason for keeping tax cuts less modest, Hosemann and other Senate leaders have pointed out. He points out that Republicans have long denigrated the use of “one-time money” for recurring expenses. He claimed that the state’s influx of money is due to Congress spending trillions of dollars on the economy. They claim that the state government has the ability to cut taxes and spend more. Political observers and lawmakers have noticed that the Senate and House appear to be far apart. Gunn, Hosemann, and their top lieutenants claim there is room for compromise, but haven’t given any specifics. Gunn repeatedly stated that “We are not married to our plans”, but he has also made it clear that he is committed to income tax elimination and not just cutting. Both plans include a reduction in grocery sales tax. This is one area where the two plans could possibly compromise. While both would reduce the cost of car tags, their approaches are very different. The House would reduce car tags by half and subsidise local governments’ fees on tags (the bulk) with state tax dollars. The Senate plan would reduce the $5 state general fund fee for tags. There could be some room for negotiation there. The Senate plan also includes a one-time income taxes rebate. This could be a way for lawmakers to ensure that they are not spending one-time money on an ongoing expense. The House might be open to such a plan. The Senate plan does not raise any other taxes to offset the cuts. Reeves and other supporters of phasing out income taxes oppose any increase in taxes. Maybe the House would reconsider its increase in sales tax? The House and Gunn may draw a line at the expense of Reeves and Reeves if they consider the phase-out of income tax to be too difficult. However, exemptions could be reduced and the phase-out could be extended. The House’s exemptions for the first year on income tax, $40,000 for individuals and $80,000 for couples, could be reduced. The House’s “growth triggers”, which will phase out the tax following its initial cuts, is a major problem. It is set at 1.5%, which means that any revenue growth above 1.5% would be used to purchase down the income tax until it disappears. Senator leaders claim that this would not cover inflation. Inflation has been at an average of 1.6% per year for many years, and seems to be on the rise. The growth trigger could be increased and/or the tax’s elimination could be limited. The two could also agree to a simple tax cut that is more in line with the Senate plan but possibly larger. The Senate plan’s main argument against it is its paltry cut, which would only give the average taxpayer a small break of just a few hundred dollars. Although they could agree to a bigger cut, given the Senate’s warnings about revenue dropping and inflation skyrocketing, a flat cut may be more risky. The Senate’s tax cuts plan would cost $317 million per year plus $130 million for a one-time expense. It would: The House’s $1.5 Billion tax cut plan would: READ MORE : Inside the Income Tax Cut Battle between Senate and House Leaders