A day before the 2025 Mississippi legislative session officially opened, the lines of disagreement were reestablished between the two chambers on additional tax cuts.
The specifics of the proposals have been refined in recent months, but the philosophical difference is generally the same.
The House, taking its cue from Gov. Tate Reeves, wants to be aggressive, while the Senate wants to take a more cautious approach.
The Senate continues to make the better case.
On Monday, Lt. Gov. Delbert Hosemann laid out the two-pronged plan that he and his top lieutenants will be pushing in the Senate. It would cut the state’s sales tax on groceries from 7% to 5% this year, and it would phase in over four years a further reduction of the personal income tax, bringing it down to 3% by 2030.
The House, meanwhile, wants to cut the grocery tax in half over a period of time still to be determined while completely phasing out the income tax over the next eight to 10 years.
Both Hosemann and House Speaker Jason White say that the state can afford their respective proposals, and if they’re wrong, the phase-in of some of the reductions would allow them to pull back before the cuts are fully implemented.
The latest tax collection report, however, calls for caution now, not five to 10 years from now.
Tax collections had been soaring during the pandemic years, mostly as a result of all the federal emergency aid being poured into this state and all the others. Collections leveled off last year, however, and are now starting to show signs of decline. Through the first six months of the current fiscal year, tax collections are down $104 million, or almost 3%. Accounting for all of the drop and then some are corporate income taxes, which are down $191 million, or a whopping 48%.
Meanwhile, sales tax collections are flat, but surprisingly the personal income tax is up 3%, even after Mississippi generously raised the personal exemption and began phasing in reductions of the tax rate toward a flat 4%. That phase-in, though, has this year and next year still to go, so chances are the state’s take from the personal income tax will start sliding, too.
Should all three main sources of state revenue start seeing declines, the most likely result will be higher taxes on the local level. Cities, counties and school districts will receive less state funding and have to make up for the difference somehow, most likely in higher property taxes. And some in the Legislature are thinking about letting cities tack on a local sales tax to offset potential losses from cuts in the state tax on groceries.
If the end result of tax reform is merely a shift from state to local levies, it’s not really helping out the taxpayers. It’s just giving those in state office something on which to brag and base future political campaigns.
Hosemann released an estimate that his tax cut plan would cost $500 million a year when it takes full effect. Today, the state can afford that much of a revenue reduction. Four years from now, who knows.
Cutting the equivalent of about 7% from the state’s income doesn’t sound all that cautious. If that is what is considered caution, though, these days in the Legislature, it would be risky for lawmakers to push it much further.
