Mississippi House Speaker Philip Gunn’s Tax Freedom Act, a proposal to phase out the state’s personal income tax over the next decade, is one of the first major pieces of legislation the Clinton Republican pushed forward within a week of the new session convening.
But rapid action on the part of the House is no guarantee that the tax-reform plan will become law any time soon. The Senate has its own plan on the way—and key leadership have indicated priorities that may differ from the architects of the House bill.
In an interview with the Mississippi Free Press, Senate Finance Committee Chairman Josh Harkins, R-Flowood, confirmed that the Senate would present the details of its plan to the public soon—likely this week. The future of Mississippi’s tax reform lies in the negotiation between the two chambers.
Unless a consensus emerges comparable to the veto-proof support for medical marijuana in the Senate, the assent of Gov. Tate Reeves will be equally necessary.
‘15 Years From Now’
The House tax plan is a hefty document in its own right, but its key provisions are relatively simple. The bill would phase out the income tax, eliminating the remaining brackets entirely by the early 2030s, based on yearly state revenue growth. Additionally, the plan would provide a 35% tax credit for car-tag purchases and reduce the state’s grocery tax, step by step, down to 4%, progressive sweeteners in an otherwise economically regressive plan.
The plan aligns neatly with a long-pursued conservative agenda, backed by national conservative policy mills like the American Legislative Exchange Council, of eliminating state income tax in the name of spurring economic growth. Last September, Gunn held hearings on the tentpoles of his tax plan, drawing support from minimal government advocates like Grover Norquist.
Mississippi’s own state economist, Corey Miller, suggested at Gunn’s hearings that downstream economic effects of income-tax tinkering may be limited in scope.
“In my view, the lack of consensus … on the effects of state tax systems on regional economies points to the limits of fiscal policy at the state level (and) is also in line with the findings of research by (the University Research Center), which is that changes to state taxes in Mississippi are likely to have marginal effects on economic growth, employment and population,” Miller said then.
Gunn is the immediate past chairman of ALEC, which often provides legislation templates to start legislatures.
To offset the cost, general sales taxes would rise under the House plan, up from 7% to 8.5%, although the plan intentionally avoids increasing the sales tax on large-scale agriculture tools, such as tractors. Direct changes to the state’s sales tax another element of the plan that would affect poorer Mississippians more directly than an income-tax reduction.
The bill sailed through its chamber, facing a breezy vote that handed it to the Senate with 96 representatives in support and 12 opposed. What limited opposition existed came entirely from House Democrats, although nearly as many Democrats did not vote or voted present instead.
Rep. Trey Lamar, R-Senatobia, chairman of the House Ways and Means committee and one of the bill’s multiple sponsors, encouraged legislators to consider the bill as a part of their legacy. “Fifteen years from now, I would not want to be the elected official solely responsible for us having an income tax in this state,” Lamar cautioned.
After a previous attempt at passing the legislation last session, and additional hearings on the matter between sessions, not much discussion accompanied the bill’s early introduction and passage.
For Now, No Earned Income Tax Credit
Only Rep. Zakiya Summers, D-Jackson, offered a significant amendment prior to the Wednesday vote.
Summers’ amendment, which was ultimately unsuccessful, would have created a state-level earned income tax credit, equivalent to 15% of the individual taxpayer’s federal earned-income tax credit. This credit reduces the tax burden and potentially provides a tax refund for individuals and families earning low-to-moderate wages.
Summers explained in an interview that her amendment was intended to follow the general spirit of the tax reform. “I tried to think of something that would not be adverse to what they were trying to do—that would add to their statement of putting money back into people’s pockets.”
Summers’ amendment follows the State of Washington’s income-tax elimination plan. “They have eliminated the state income tax, but they also provide a state tax credit that is based on the number of children that you have, or if you don’t have any children at all,” the representative explained.
Lamar, speaking against the amendment, warned that he could not appraise its effect on the cost of the overall bill, but did not preclude working with Summers later in the session on the subject of low-income tax credits.
Summers, speaking to the Mississippi Free Press, explained that while Lamar may have had little time to consider her amendment, she herself had little time to review the entire tax bill. “The bill was brought (to the floor) so fast that we really didn’t even have time to digest and study it.”
The Jackson Democrat was one of the 12 to vote against the bill.
Tax Reform That Weathers Storms
If an income-tax bill does land on the governor’s desk this session, it could be with or without the consent of a single Democrat in the Legislature, although Wednesday’s vote indicated that this support exists anyway. A harder nut to crack will be the opposing chamber—with its own personalities, leadership, and fiscal philosophy.
The Senate is in no sudden rush to clear the tax debate off the Legislative agenda. After the House passed its tax plan, Sen. Harkins told the Mississippi Free Press to expect the Senate’s version soon. “The deadline to even introduce revenue bills is a long way off. So there’s not a rush to put something in right now, … I think it’s more important to get it right than to get it in a hurry.”
Harkins declined to provide specifics for the upcoming tax bill, but pointed to previous tax reform—like the bill passed in Gov. Phil Bryant’s tenure in 2016 to eliminate the 3% tax bracket—as evidence that budgetary responsibility would be a pillar of the Senate’s approach.
“We’ve demonstrated in the past that we’ve been cautious and careful not to blow a hole in our budget,” Harkins said. “(The 2016 bill) added the unemployment insurance deduction, and it phased out the franchise tax over 10 years. We’re in year four of 10. We’re still cutting a major portion of the largest tax cut in Mississippi history; we’re only halfway through a portion of it.”
As Harkins explains it, the challenge for the Senate plan—and probably for the House plan when it arrives in that chamber—is to balance cuts with projected revenue, projections the Finance chairman worries may not be as bountiful as they have been in recent years.
Mississippi’s state revenue has exceeded its projections and grown significantly compared to last year, revenue growth that the House intends to use in part for the elimination of the income tax. Senate leadership may be anticipating a slowdown in that growth that could complicate any tax reform.
“I don’t think anybody thinks that the continuation of growth in revenue is going to continue at the pace that we’re on right now,” Harkins said. “Nobody has a crystal ball, but we’ve got to figure out what is a responsible, reasonable expectation of where our revenues will be.”
Harkins, for his part, sees longevity as the linchpin of a functional tax-reform plan. “Even when we had the hearings this summer, I said whatever tax code we put in place has to be durable,” he said. “It has to stand the test of time and weather the storms and make sure we make it in good shape … There’s no sense in us coming out here trying to cut taxes if we can’t live up to it and budget for it.”
The specter of Kansas’ ill-fated tax plan is invoked frequently in tax-reform debates. Harkins told the Mississippi Free Press that Mississippi could avoid the Kansas disaster with better planning.
“I think Kansas was doomed when it set sail. Cold turkey, they cut out a lot of taxes, and they raised spending by a couple of hundred million dollars. That’s just a recipe for disaster,” he said.
In the past, Lt. Gov. Delbert Hosemann has been the emergency brake on Mississippi’s income tax elimination train, challenging the proposal in its earliest forms as endangering the state’s budget.
“It’s a $2-billion dollar question,” Hosemann told this reporter in 2020. “I am open to any solution to that. But, until we have a solution … it’s not ‘Field of Dreams.’ I don’t print money. We have to have enough funds to pay for highway patrol, education, all the other things we pay for as a state.”
Last Monday, Hosemann told press at the Capitol to expect tax reform that touched on numerous subjects, not only income tax. “I think you’ll find our plan to be multidimensional. … We are not hung up on one specific thing that says we eliminated something.”