Senate Unveils Plan To Eliminate 4% Tax Bracket

Two men in suits sitting at a desk talking into thin mics
Sen. Josh Harkins, R-Flowood, pictured right, revealed the Senate tax plan on Tuesday, Feb. 1, 2022. In contrast with the House’s full repeal of the income tax, it targets a smaller chunk of the state’s income-tax burden. Rep. Trey Lamar, R-Senatobia, pictured left, immediately fired back, “pleading” with his colleagues to propose a full repeal. AP Photo/Rogelio V. Solis

The Mississippi Senate has unveiled its income-tax plan for the 2022 session, a bill proposal significantly out of step with the House of Representatives’ charge toward full elimination of the state’s income tax.

Sen. Josh Harkins, R-Flowood, announced the details of the plan Tuesday at the end of a Senate Finance Committee meeting without formally filing the bill. Senate leadership has until later in February to introduce the bill.

“This was not a singular effort by any stretch—but a collective effort to make sure that it is a durable plan … that will last, will weather the storms,” Harkins said.

As Senate Finance Committee leadership previously hinted, the Senate bill’s aim is to eliminate the 4% income-tax bracket, while leaving the top income-tax bracket of 5% intact. The Legislature previously passed a bill eliminating the first bracket of 3%. In practice, this means that eventually only taxable income beyond the first $10,000 will be subject to state income taxes. 

Additionally, the plan would immediately cut the state’s grocery tax from 7% to 5%, a progressive tax reduction that would more significantly affect lower-income Mississippians, who spend more of their yearly budget on food than wealthier consumers. The bill would also eliminate state fees on car tags, and provide a one-time tax rebate of up to $1,000 for all state taxpayers.

The Senate released a document summarizing the cost of the tax proposal, estimating the recurring revenue loss at just over $316.6 million a year, a significant adjustment but far below the cost of fully eliminating the 5% bracket and the income tax as a whole. The one-time tax rebate is estimated at $130 million.

Senate leadership estimates that its tax plan would cut nearly $178 million from the state’s yearly revenue stream immediately, and scale up to a reduction of $316.6 million.

The Cocaine We’re On

The Senate plan differs from the House plan significantly, offering a far more progressive series of cuts, meaning cuts that would more directly reduce tax burden for the poor than for the wealthy. The total footprint of the Senate plan is also a smaller hit to State of Mississippi revenue.

Introducing the plan at the end of Tuesday’s hearing, Harkins explained that the Senate plan was concerned with the trajectory of the state’s revenue moving through the pandemic. “We actually anticipate a dip in revenues,” Harkins said. “I don’t think anybody here is under the illusion that the normal revenues that we are receiving right now is anything short of the cocaine the federal government has us on. It’s going to drop at some point, so we took that into consideration.”

Notably, the Senate plan does not include offsets, which are increases in taxes to pay for the reduction in income-tax payments. The sprawling House plan does, pumping up the general sales tax from 7% to 8.5%, a regressive shift of the overall tax burden. The House plan also includes a slightly larger cut to the grocery tax, eventually bringing it down to 4%

“Collectively,” Harkins said, “this is about a $446 million tax-relief package. And it does not increase any revenues anywhere. We believe this is fiscally responsible. It does not wreck the budget.”

‘Mississippians are Smart’

Lt. Gov. Delbert Hosemann, who has long been a skeptic of a full income-tax repeal, released a statement in support of the proposal. “Around the kitchen table,” Hosemann wrote, “Mississippi families are talking about the significant impact of inflation on the cost of groceries and other goods and services which are necessities in daily life. The Senate’s plan is sustainable and directly tackles inflation without increasing any taxes.”

The collegiate rhetoric of Senate leadership aside, its plan once again puts it in direct opposition with the House, who have already passed a much more expansive plan. And the House’s plan would give both Gov. Tate Reeves and his potential opponent for a second term, House Speaker Philip Gunn, the ability to stump for conservative primary voters on their vanquishing of the income tax.

Already, members of the House are pushing back on the Senate proposal, albeit in genteel terms. Rep. Trey Lamar, R-Senatobia, chairman of the House Ways and Means Committee, put out a statement shortly after the Senate unveiled its plan.

“Last year, the House pushed for the elimination of the punitive tax on work in Mississippi and the Senate chose not to act,” the statement reads in part. “… Now the Senate has followed suit with their own plan. Although it pales in comparison to transformative tax reform that Mississippi needs, the Senate’s initial effort is a giant first step for them and is to be commended.”

“However,” Lamar wrote, “Mississippians are smart, and do realize that the goal is complete elimination of the income tax and that it would free up working people to invest more in their families, their church and their communities.”

Lamar’s statement ended with a plea for Senate leadership to “fully eliminate the tax on work for our people,” setting up what is likely to be the most contentious fight between the two chambers of the Legislature this session.

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