House leaders argue that these projections do not account for booming state revenue. A modest Senate tax cut plan would provide no relief to taxpayers at a time of full state coffers. As the 2022 legislative session begins, the dueling tax cuts proposals could be the political battle of all time. Both the Senate and House Republican leaders want income tax cuts. However, they are still far apart in their plans and both sides have been criticizing each other. Their major differences are simple. The Senate wants a more conservative approach while the House wants a comprehensive tax overhaul. “Tax policy needs to be simple and sustainable,” stated Lt. Governor. Delbert Hosemann is the Republican Senate leader. “It is not possible to base tax structures on assumptions that will likely never happen. Hosemann stated that the Senate tax reduction plan was durable and will not cause a deficit in the future. It also allows the state to continue funding critical services without increasing government. “If the state maintains record-breaking revenue growth, we will continue to return taxpayer money to taxpayers.” However, Republican House Speaker Philip Gunn stated: “We don’t want a token tax cut that returns only a small portion to our citizens without eliminating it…. We believe our plan to be real, conservative tax relief.” Some lawmakers aren’t convinced the state is in a position to reduce taxes. D-Amory State Senator Hob Bryan said that it was a mistake to assume there is money for either tax reduction plan. “Our roads are falling apart, we aren’t paying state employees.” Bryan stated that the schools have not been funded. Bryan said, “We don’t have water or sewer. You can reduce taxes but not have a functioning community. This is where we are now.” Gunn stated that eliminating the state’s income tax was his most important goal in politics. House leaders are seeking to eliminate the state’s income taxes. They plan to start with significant exemptions in year 1. This would ensure that most Mississippians will not have to pay income tax and increase their sales taxes. Gunn’s plan, which was approved by the House already, eliminates the income tax. It accounts for approximately one-third state general fund revenue. However, it increases the sales tax on most retail products from 7% to 8.5%, and reduces the cost of car tags by half. The plan eventually reduces the grocery taxes from 7% to 4.4%. The plan, if fully implemented, would reduce state revenue by $1.4 billion in current dollars. This is a substantial amount considering that the state general fund stands at $5.8 billion. The House proposal does not take effect unless certain revenue growth projections can be met within the next ten years. Some believe it will take more than a decade for the revenue growth projections to be met. READ MORE: Speaker Gunn’s Plan to Eliminate Income Tax and Reduce Food Tax The Senate, headed by Hosemann is proposing a modest tax cut. This would, based upon projections made for the Senate leadership prevent major spending cuts but would still allow funds to address inflationary growth. The Senate plan would not eliminate the income tax completely, as the House plan did. Instead, it would only phase out the 4% state income tax bracket for four years. The Senate plan would eliminate the 3% bracket of income tax, and people would not pay any state income tax for their first $26,600 in income. After four years of cuts, the Senate plan would cost $316million per year. There will also be a $130 million one-time expense for a rebate to taxpayers in its first year. The Senate plan would reduce the state grocery tax to 7% from 5%, offer a 5% income rebate to taxpayers in 2022, and eliminate the fee for car tags that go into the general fund. READ MORE: Senate proposes income tax cuts, signaling a battle between Capitol leaders. The House proposal passed its chamber with bipartisan support. It is now being considered by the Senate. Although the Senate has not yet adopted its plan, it is expected to do so in the coming days. The Legislative Budget Office’s projections of the House plan were based on historical trends in revenue, expenditure and inflation. The projections show that the House plan will create more than $250 million in revenue by year 2. In addition, the state would be in debt for the next three fiscal years. This would require large spending cuts and tax increases. These projections don’t go beyond five years. The Senate projections are based on a $6.49 billion revenue estimate for next fiscal year. This is the current state revenue estimate. House leaders, including Trey Lamar (R-Senatobia), Ways and Means Chairman, claim that the state will collect much more than this, as it is currently on track to do. Lamar stated, “What I don’t want to get out is that the state cannot afford the House plan.” There are two ways that we can afford the House Plan. No. 1. Change the estimate the Senate uses — which we know is incorrect — to the tune $600 million. Actual collections should be used instead of — I’m certainly not going to label it a false estimate — but we know that there are more green dollars coming in than we think…. Add $7 billion and the red numbers disappear at the bottom. Lamar stated, “Or, you just leave it there and ignore the money coming into it and leave it there. We’ve got more that $2 billion saved, plus the rainy-day fund. You can take anywhere from $400 million to $500,000,000 and put it aside. We have an influx in one-time federal funds right now from a federal government spending too much. “The Senate has a permanent tax cut that will increase the amount of money available to taxpayers and withstand economic instability.” READ MORE. Business leaders are against Gunn’s income-tax elimination-sales tax hike. The issue in the Senate projections by the Legislative Budget Office concerns the House plan’s impact in the first two year. The first two years of the House plan do not depend on future growth projections. The House plan will exempt from tax the first $40,000 of income for a single person, and the first $80,000 for a married couple, at a cost $1.1 billion for fiscal 2024. This year’s fiscal year begins July 1, 2023. For fiscal 2024, the cost to cut car tag fees by half would amount to $187.7million annually. The cost of cutting the grocery taxes would come in at $103.6 million. The state would also receive $705.5million from an increase in the retail sales tax from 7% to 8.5%. Legislative leaders state that both the revenue assumptions for the plans are based upon projections by the Department of Revenue as well as the state’s financial specialists. The Senate projection of how the House plan will impact overall state revenue is based on the revenue estimate that was adopted by the Joint Legislative Budget Committee (which includes Gunn, Lamar and the governor) and used it as its starting point for developing its projections. Both the governor and the committee approved a $6.49 billion estimate in December 2021. The December 2021 estimate of $6.49 Billion was adopted unanimously by Tate Reeves. This is the projection of revenue available for budgeting in the next fiscal year that begins July 1. Even though Lamar, and other House leaders voted in favor of the projection, they now claim it leaves money on table. The state is experiencing unprecedented revenue growth. In preparing a fiscal analysis of the House’s plan, the House projects that there will be an additional $1.1million in revenue in the current year. This could be used to offset the tax cut. Lamar states that revenue will not only be strong for the current fiscal year but will also remain strong over the next few years. With five months left in the fiscal year, revenue collections for the current fiscal years are already $667 million higher than projected. Lamar stated that money is available to fund critical needs. This includes a teacher raise of more than $200m. It has been passed by both chambers of Congress in different forms. They must still be reconciled before the session ends. Senate leaders insist that, even if the House projections are used, it is unlikely that revenue will be available in the 2023 session to pay for teacher raises and other spending. READ MORE: Mississippi’s tax laws place a higher burden on people of colour. Senate leaders claim that history has proven that the state’s economic boons derived from federal spending, such as the Great Recession stimulus and the BP oil disaster funds, are fleeting. With inflation at historical levels and other uncertainties in economic life, conservative tax structures are necessary. The House Democratic leader Robert Johnson of Natchez voted in favor of the House plan. However, Johnson isn’t convinced by it and acknowledges the many state needs. Johnson wondered if the Republican majority could agree on a plan for eliminating the income tax due to disagreements over how to accomplish such a large undertaking. Johnson predicted that “I’m betting they butt heads” and said that Gunn’s plan would cut the state’s grocery taxes and lower by 50% the cost for car tags. Both of these measures are a benefit to working families and poor people. To support this important work, you can make a regular donation to us today as we celebrate our Spring Member Drive.