Are revenue collections already slowing as state leaders consider massive tax cut?
Mississippi’s historic growth in state tax collections is slowing — at least for a month.
This past month the state collected $518.8 million in taxes and other revenue compared to $531.9 million in November 2021.
Does the November revenue report represent the start of a slowdown in Mississippi tax collections that have grown at an unprecedented rate for more than a year?
It is a fair question? After all, Gov. Tate Reeves, House Speaker Philip Gunn and others are citing the unprecedented growth in state revenue as a reason to enact a tax cut that will take about $2 billion yearly out of state coffers.
The November report recently released by the staff of the Legislature Budget Committee represents the first slowdown in monthly revenue collections for the state since July 2021 when tax collections were less than the amount collected a year earlier in July 2020.
Granted, folks who study Mississippi revenue collection trends are fond of saying that one month does not a trend make. The state saw increased collections for 16 months after that slowdown in July 2021. So, there is a good chance that the collections will bounce back in December.
But as sure as night follows day, the slowdown in Mississippi tax collections eventually will occur. History tells us that.
Revenue grew by 9.54% during the fiscal year that ended on June 30 and by an unprecedented 15.9% the previous year.
The result of the strong growth is that the state has a revenue surplus of $3.9 billion going into the 2023 legislative session that begins in early January. Having $4 billion in reserves is staggering considering the total state support budget, which consists primarily of general tax collections, such as the sales tax on retail items and the income tax, is $7.86 billion for the current fiscal year.
A small portion of those reserve funds, about $450 million, are COVID-19 federal relief funds and money from lawsuit settlements, but most of the funds are the result of a boon in state tax collections.
The net result of those large reserves is that state political leaders are feeling pretty good and bragging on their governance prowess.
“We are in a great financial position,” Gunn, R-Clinton, said recently, echoing similar comments of Reeves.
“We can’t neglect or ignore the fact that conservative spending led to this type of financial situation,” Gunn continued. “We have rejected the attempts to grow government over the last many years and this (revenue surplus) has been the result of that.”
That is all well and good except for the fact most states have had similar unprecedented surpluses. California, for example, a state that Mississippi politicians like to criticize for its liberal policies, had a whopping $98 billion surplus, though, it appears that the West Coast state’s tax collections already are slowing.
But before slowing, California provided one-time rebates of between $200 and $1,500 to individuals earning less than $250,000 and to households earning less than $500,000.
Multiple states, controlled by Republicans and Democrats, have provided rebates.
In Mississippi, the taxpayers have not yet reaped any direct cash benefits from the massive surplus. In the 2022 session, legislators approved the largest tax cut in state history – a $525 million cut to the income tax. But that tax cut will not be fully phased in until 2026. Taxpayers can receive a small monthly benefit from the tax cut starting in January if they change their payroll deductions. Otherwise, taxpayers will receive no benefit from the tax cut until they file their tax returns in early 2024.
Lt. Gov. Delbert Hosemann has proposed the Legislature provide a rebate in the 2023 session. Reeves and Gunn are proposing the complete elimination of the income tax. Such a cut will take an additional $2 billion out of the state treasury on top of the $525 million tax cut made last year.
During much of the 1990s, thanks to the start and incredibly rapid expansion of casino gambling, Mississippi experienced a prolonged period of historic revenue growth.
But by the early 2000s, as a recession hit the country that was especially bad in Mississippi, the Legislature and then-Gov. Ronnie Musgrove were having to cut budgets.
That is not to say that the Legislature and governor should not look for innovative ways to spend the surplus for the betterment of the state and its citizens.
A reasonable debate can be had on whether it is better to return funds to citizens or use the surplus to address the litany of problems facing the state. But it is safe to assume tax cuts that take more than $2.5 billion yearly out of state coffers will have a lasting impact, especially when revenue collections slow as they most assuredly will.