Mississippi lawmakers are playing a game of one-upmanship when it comes to tax proposals, but the biggest losers could be taxpayers if lawmakers enact one of the more ill-advised plans.
Last week, after just two hours of debate, the Mississippi House passed a bill that would phase out the state’s personal income tax. If passed by the Senate, the bill could gradually eliminate nearly a third of state revenues. Despite the hollow promises of tax-cut advocates, eliminating the income tax would do nothing to improve employment or economic opportunity in the state.
The new bill, championed by House Speaker Philip Gunn, is the latest example of state lawmakers’ zeal to change the state tax code. Gov. Phil Bryant and Lt. Gov. Tate Reeves have also offered tax cut plans, though their measures are more moderate than the House proposal. Bryant wants to create a non-refundable Earned Income Tax Credit for low- and moderate-income Mississippi families, while Reeves wants to implement a package of income and business tax cuts and eliminate the state’s corporate franchise tax.
Opponents of Gunn’s income tax elimination have derided the plan as “lunacy,” and it is a hard accusation to dispute. Losing its second-largest source of revenue would be a devastating blow for the state, particularly because the effect of any spending cuts would be concentrated on the most vulnerable Mississippians. While the bill does not include any program cuts or new taxes to offset lost revenue, they would surely be necessary.
Supporters of eliminating the income tax are using the widely disproven claim that cutting taxes will boost economic growth, and therefore state revenue. A look at Kansas provides a cautionary tale: lawmakers passed deep income tax cuts using the same rubric only to slash spending later, and now the state’s conservative governor is proposing regressive consumption tax hikes.
Eliminating Mississippi’s state income tax would do little to support working and low-income families since most of the benefits would accrue to the wealthy. Data from the Institute on Taxation and Economic Policy shows that 65 percent of the tax cut would go to the top fifth of earners, and that the top one percent of earners would get an annual average tax cut of $20,000 if the policy were fully implemented.
Supporters believe they have answered the complaints of critics by including growth triggers in their proposal. Each phase in the income tax elimination could only proceed in years when state revenue grows by at least 3 percent. In reality, the triggers only expose their cynicism. Revenue growth in the state has slowed over the past 15 years, from 7.22 percent annually in 2000 to about 3.5 percent recently. The culprits for declining revenue growth are rising income inequality and a dampened economy, which cut into the sales tax revenues that Mississippi relies upon heavily. In fact, revenue growth from 2010 to 2013 was driven by income and corporate tax collections – the same sources that some state leaders want to cut. Supporters of eliminating the income tax either know this information and are pushing triggers to look “responsible,” or they don’t know this information and are dangerously ignorant of state finances.
Mississippi has been the poorest state in the nation across a variety of measures since at least 1931. Today, the median net worth of a Mississippi household is half the median net worth of the average American household, and the state fares poorly on indicators related to poverty – life expectancy at birth, educational attainment, employment, and obesity, among others. The people of Mississippi sorely need economic growth, but because their leaders rely on tax cuts as an economic development strategy no growth is forthcoming.
The true drivers of growth – workforce quality and new markets for goods and services – have seen systematic under-investment, leaving Mississippi underdeveloped. A strong workforce and economic climate aren’t cheap, and more tax cuts will just move the state further backward. It’s a shame that today’s leaders will repeat past mistakes, but it was Faulkner who wrote, “The past is never dead. It’s not even past.”