Although the Senate this year shelved House Speaker Philip Gunn’s effort to enact a decade-long phaseout of Mississippi’s individual income tax, the issue is not likely to go away.
Whether it’s Gunn’s plan to shift the tax burden from income to consumption, or Gov. Tate Reeves’ desire to eliminate the income tax and hope for the best, this is going to be a topic of discussion at least into the 2022 legislative session.
The Senate put off Gunn this year with an agreement to study the matter before lawmakers return to the Capitol next January.
Presumably that study will include looking more closely at the nine states that have no personal income tax, which Gunn and others contend is a secret to these states’ higher growth rates than Mississippi’s.
It’s not as simple as that, however.
There are plenty of reasons why Mississippi is not growing, and the tax rates here are probably among the least of them. The stagnant population more likely reflects Mississippi’s heavily rural nature, the economic shift to automation and outsourced manufacturing, and the lack of quality public schools in many parts of the state.
But if Mississippi is going to chase the tax tail of states that do not have a personal income tax, it should do so with its eyes wide open. If the money to operate government doesn’t come from the income tax, it has to come from somewhere. Those somewheres are going to be significant increases in other taxes that individuals pay.
Of the nine states without an income tax, you can throw out Alaska and Wyoming as points of comparison. They have oodles of money coming from their oil and natural gas riches, which Mississippi does not have.
As far as the other seven states, they have compensated with high sales or property taxes, or both. Tennessee, for example, tacks on an average of 2.55% in local sales taxes, according to the Tax Foundation, a clearinghouse of tax-related research. Tennessee’s total combined sales tax rate of 9.55% is the second-highest in the country.
In Texas, not only does that state add nearly 2% in local sales taxes, but it has heavy property taxes. The average tax rate on a house in the Lone Star State is nearly three times what it is in Mississippi. According to the Tax Foundation, 44% of Texas’ income for state and local government is generated by property taxes. In New Hampshire, a state with no income tax and no sales tax, property taxes are the third highest in the country and account for 64% of state and local tax collections. In Mississippi, the figure is 28%.
Tate Reeves’ idea would almost certainly result in higher local property taxes, since there is no offsetting increase in other state taxes to make up for slashing income-tax collections. Gunn’s idea is to pay for tax cuts with a wide range of sales tax increases, but supporters of that plan have already backed away from some of the increases it originally contained, such as on farm and manufacturing equipment. If Gunn’s plan is not revenue-neutral, that means cutting state outlays and pushing the burden onto counties, cities and school districts, whose only recourse would be to raise property taxes.
Either way the tax shift were to play out — in higher sales taxes or higher property taxes — it would exacerbate the disparities that already exist in this state between poor rural areas and wealthier urban and suburban ones.
State funding for schools and roads, for example, somewhat help to equalize the quality of both, no matter where you live. Forcing local communities to pay for more of these costs would only accelerate the decline in areas of Mississippi with low tax bases, such as the Delta.
Although it is true that the overall tax burden, as a percentage of personal income, is higher in Mississippi than in any of the states without an income tax, Republicans are targeting the wrong source to close that gap.
Mississippi’s income tax is already relatively light, the 37th lowest in the nation, according to the financial website wallethub.com, and it’s going to get even lighter without any further action. Under previous legislation, the state has been phasing out the 3% tax on the first $5,000 in income. That process gets completed next year.
Where Mississippi is out of whack is on the sales tax, with the seventh-highest burden in the nation. That’s because a large percentage of its population is poor, and poor people spend a higher portion of their income on goods and services that are taxable. Instead of raising the sales tax to pay for cutting the income tax, the numbers would suggest any shift should be in the opposite direction.
Whatever the Legislature does, it better be careful. If it eliminates the income tax and that proves to be a disaster, it will be politically difficult to reinstate it.
Contact Tim Kalich, editor and publisher of the Greenwood Commonwealth, at 662-581-7243 or tkalich@gwcommonwealth.com.
