Phase out income tax or cut taxpayers checks? GOP lawmakers, governor disagree

by Geoff Pender, Mississippi Today
December 7, 2022

Republican Lt. Gov. Delbert Hosemann and other GOP Senate leaders want to use a huge revenue surplus to give Mississippi taxpayers one-time rebate checks.

Republicans Gov. Tate Reeves and House Speaker Philip Gunn still want to phase out the personal income tax, as a follow-on to the massive income tax cuts passed last year, which are still being implemented.

Each side says it wants to give back to taxpayers and its approach is the conservative, prudent thing to do. The issue is likely to bring heated internecine Republican debate in the new year, as it did last legislative session.

“Last year, we passed the largest tax cut in Mississippi history,” Hosemann said. “Phase-in for this $525 million cut begins this year and will result in a 4% flat income tax by 2026. This year, the Senate will propose a tax rebate. Both efforts will put significant tax dollars back into taxpayers’ pockets at a time when citizens are dealing with crippling inflation and an uncertain economy.”

But Gunn said, “No. We are not in favor of a tax rebate. We want permanent, long-term tax relief … My position has always been for elimination, or at the very minimum more tax elimination … (A rebate) is just a one-time payment.”

Reeves recently vowed to push for income tax elimination as long as he is governor, and hasn’t addressed the rebate proposal.

The state is entering its annual legislative session and budget setting with about $3.9 billion in unencumbered money, of which about $1 billion is recurring tax revenue. For scale, the state in fiscal 2022 collected $2.5 billion in personal income taxes. No percentages or amounts of potential rebate checks have been publicly discussed, but lawmakers could cut taxpayers some hefty checks.

READ MORE: Mississippi lawmakers pass the largest tax cut in state history

Hosemann and Senate leaders say the national and state economies are in turbulent, inflationary times with recession possible, and that much of the state surplus is from unprecedented federal spending that isn’t likely to continue or recur. They warn that fully eliminating the income tax in such uncertain economic times is foolhardy. Many state business leaders, including the state’s chamber of commerce, shared this trepidation last legislative session.

READ MORE: Inside the income tax cut battle between House and Senate leaders

Gunn and Reeves say Mississippi’s economy is on a roll that will continue, and that eliminating the personal income tax would help the state compete for economic development. Gunn points to nine states with no income tax, including Florida, Tennessee and Texas, as having thriving economies and growing population.

But no state has ever phased out an individual income tax. Alaska, the only state to eliminate an existing income tax, did so in one fell swoop. The states without income taxes typically have other taxes or excises on which to depend, such as oil in Alaska and Texas and tourism in Florida. Tennessee’s sales and excise taxes are more than 30% above the national average, and 7th highest in the country relative to personal income.

For Mississippi, the shift would be seismic: Individual income taxes generate about a third of the state’s tax revenue. Opponents of major cuts or elimination say the state has too many long-neglected needs in health care, education and infrastructure to upend the state’s tax structure, and it should be spending any windfall to address these.

Senate Appropriations Chairman Briggs Hopson, R-Vicksburg, said he will introduce a tax rebate bill in the 2023 session, as he did last session. Hopson and Senate Finance Chairman Josh Harkins, R-Flowood, said lawmakers need to monitor the economy and huge tax cuts already being implemented before making further sea changes to state tax structure.

“The ultimate objective for those of us who are conservatives is to ensure we put as much money back in people’s pockets as possible,” Hopson said. “However, there are certain services, certain levels of service citizens expect from government … We are looking at some short-term measures to put money back into taxpayers’ pockets to help them with the high cost of goods and inflation … We really haven’t even implemented the last cuts we passed. A tax rebate is more prudent.”

Harkins said major tax policy changes should be made cautiously and over time, but a rebate can be based on a “snapshot,” such as the current budget surplus.

But House Ways and Means Chairman Trey Lamar, R-Senatobia, said, “There’s no question which one is preferable between a multi-year, permanent tax cut versus a one-time slush fund payment. Ultimately, (elimination of the income tax) is better for the economy and ultimately better for working Mississippians. It’s really not even debatable which is better for hard-working Mississippians.”

The 2023 session comes in an election year. Typically, lawmakers try to avoid tackling major, contentious issues or policy during election-year sessions. It appears the tax elimination-rebate debate will be on tap, but some lawmakers and legislative leaders might not be as eager for the wrangling.

House Speaker Pro Tem Jason White, R-West, considered a likely successor for the speakership in 2024 with Gunn’s planned departure, said the state has many needs and demands for the “pile of money” collecting in state coffers. He noted the state faces federal intervention if improvements aren’t made in prisons, with state foster care and mental health and that hospitals across the state are struggling to stay afloat.

“We have a chance to fix some of that,” White said. “I’m not saying we’re not wanting to put more money in taxpayers’ pockets … The House has passed two bills to do that, and we have a four-year plan that has started a phase out of the income tax … We have got some things we should try to fix while we’ve got a surplus before we ask our Senate colleagues to take that next step.”

This article first appeared on Mississippi Today and is republished here under a Creative Commons license.