Although it’s still five months before Mississippi lawmakers return to Jackson, some of the issues expected to resurface are already clear.
There is likely to be another go at Medicaid expansion. School-choice proponents will be advocating again for a voucher system that’s much broader than just targeting children with learning disabilities, as is presently the case.
And there will be another push for additional tax cuts, whether that be to the income tax, the sales tax on groceries, or both.
There seems to be more momentum these days for reducing or eliminating the grocery tax than there is for eliminating the income tax, the longtime primary objective of Gov. Tate Reeves. With the personal income tax already on track to be reduced to a flat 4% in 2026, Mississippi will be toward the bottom end of the scale for those states with an income tax. If there’s any tax inequity to address, it’s much more evident with the grocery tax.
Mississippi is one of only 13 states that charges a sales tax on groceries, and its 7% tax rate is the highest of those 13. Unlike income taxes, which are paid by those who can more readily afford the burden, the sales tax — and especially the sales tax on groceries — hits disproportionately hard on those with the least financial resources.
The main sticking point on cutting the grocery tax, though, is the impact it would have on municipalities, which receive back from the state 18.5% of all sales taxes collected within their boundaries. All of these towns and cities depend heavily on that revenue to fund their operations.
Most of those who are advocating for reducing the grocery tax acknowledge that something would have to be done to make cities whole, but it gets complicated.
One idea would be to increase the cities’ cut beyond 18.5% not only on grocery purchases but all taxed purchases. The problem there is coming up with the correct percentage for cities of all sizes. In small towns, where groceries are a disproportionately large share of retail sales, the increase would need to be substantial to keep them whole. But larger towns and cities, whose retail base is more diversified, might see a windfall from the same-size increase.
To get around that, the municipalities’ share could be increased on grocery purchases only. For example, if the tax was cut in half, the cities’ portion of what’s collected could be doubled to 37% to keep them even. Such a two-tiered system for cities — one percentage on groceries, another on everything else — would require more complicated tracking, but it could be done. It also assumes, of course, that the tax would only be reduced, not eliminated.
Another option — unpopular with the cities, for certain — would be to leave the 18.5% share unchanged and just let the cities figure out how to make up their loss. Most likely, that would mean raising the local taxes assessed against homes, vehicles and other property.
Any way you look at it, though, tax cuts usually result in tax shifts. Mississippi has been able to avoid that so far during its series of income tax reductions, thanks to surpluses fueled by the massive pandemic-related outlays the state and its residents received from Washington. But those surpluses are not going to last forever. Indeed, for the last several months, state revenues have shown signs of weakening.
When the surpluses are gone, tax rates are going to rise somewhere. It’s either going to be on consumption (sales tax) or wealth (income and property taxes).
The disagreement comes in deciding which potential revenue source is the most fair one to tap.
