Want a $1,000 check? Lawmakers, flush with cash, could send you one instead of cutting taxes

by Bobby Harrison, Mississippi Today
February 27, 2022

When Mississippi politicians brag of their good stewardship of state funds leading to an unprecedented revenue surplus, they sound kind of like the turtle sitting on top of the fencepost bragging about how good a climber he is.

“Mississippi continues to be in the best fiscal shape and the best financial shape in its history,” Gov. Tate Reeves said in his January State of the State speech. “Mississippi ended the year a billion dollars over revenue estimates. This was not an accident. We kept our businesses open.”

The turtle talked as if he got on top of the fencepost all by himself. The politicians talk as if they created the revenue surplus by themselves. Just as the turtle had help, so did Mississippi politicians.

But still in his budget proposal, Reeves bragged, “Despite a global pandemic and recession, Mississippi's economy is booming. While Democrat-led states shutdown and locked down, Mississippi opened up.”

Others have made similar comments.

The truth is that many Republican-led and Democratic led states have huge budget surpluses, thanks to a confluence of COVID-19 pandemic-related circumstances, such as a massive influx of federal funds, rising wages, rising prices and an overall red-hot economy. The budget surplus was so strong in deep blue California, for instance, that politicians gave people a stimulus check ranging from $600 to $1,100 and are talking about providing another one. They have enough of a surplus to do it. Other states — red, blue and purple ones — are doing the same.

Here in Mississippi, the Legislature could provide all people currently earning a paycheck a one-time rebate of $1,000 and not impact the ability moving forward to continue services at current levels.

As the state's Republican leaders debate the size and scope of tax cuts they want to provide, an alternative proposal might be to give all working people a one-time rebate instead of a recurring tax cut that could negatively impact the economy for everyone down the road.

READ MORE: 5 things to know about the Great Mississippi Tax Cut Battle of 2022

Because of an unprecedented surplus in state funds that most likely will be more than $2 billion by the end of the fiscal year on June 30, it would not be a heavy lift for legislators to provide the rebate.

The issue with the tax cut proposals being debated in the Legislature is not that the state cannot afford them at the current time; it's the uncertainty about the impact of the tax cuts 10 or 15 years from now.

At some point, Mississippi lawmakers learned a new gimmick when taking up tax cut proposals — the phase-in. For instance, the tax cut passed in 2016 (the largest in state history) will not be fully phased in until fiscal year 2028. Reeves, who was lieutenant governor in 2016 when the tax cut was passed, will be finishing his second term as governor, assuming he is reelected, when the tax cut is fully enacted.

Even as that tax cut is far from being fully enacted, Reeves, House Speaker Philip Gunn and others are talking about tax cuts centered around eliminating the income tax, which accounts for about one-third of the state general fund revenue. Lt. Gov. Delbert Hosemann and his Senate allies are proposing a more modest tax cut.

All of the tax cut proposals have one thing in common: They would be phased in over time. In other words, it would be a phase-in on top of the current phase-in.

READ MORE: With Senate set to pass its income tax cut, House hasn't budged on its desire for elimination

A phase-in, they reason, reduces chances of a large negative impact on revenue. During recent debate on the Senate floor, Chris McDaniel, R-Ellisville, explained the logic of the phase-in.

McDaniel said that if the Legislature had acted 13 years ago to phase out the income tax, the state could now be rid of that worrisome tax and still have more revenue now than it did 13 years ago — presumably revenue primarily from the sales tax on retail items.

What politicians often do not explain is that revenues normally always go up as wages, inflation and presumably the number of people paying taxes go up.

But the fact remains that in red Mississippi or in blue California, it takes a lot more money than it did 13 years ago to run a household or to provide governmental services.

Mississippi, to be sure, has a lot of money right now. Many believe that money should be used to address the state's many needs.

But if leaders are determined to return funds to taxpayers, there are at least two ways to do so. It could be done through traditional tax cuts that remove revenue from the state revenue stream permanently, or it could be done through a one-time rebate of, say $1,000, that could be done without impacting future recurring revenues of the state.

If the surplus continues in coming years, additional rebates could be provided while not mortgaging the state's future or without knocking that turtle off his fencepost.

READ MORE: The Mississippi Republican income tax bet

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