Below is a column on political opinions from the Bigger Pie Forum:
The Mississippi Legislature is considering abolishing the state’s personal income tax to boost the Mississippi economy. The theory is that such a move would entice companies to move to or stay in Mississippi.
Some Mississippi politicians believe that if Mississippi is to see population growth (a good indicator of a healthy economy as residents tend to vote with their feet for better jobs and living conditions), changes must be made to the state’s tax law.
In the latest US census, the state lost more than 6,000 residents, the first population loss for the state in 60 years of largely stagnant growth compared to neighboring states.
Among the states that Mississippi competes with, Florida, Tennessee, and Texas all enjoyed great population growth over the past decade. In addition to dynamic, high-growth economies, the trio have one thing in common that there is no income tax.
The Legislature’s Joint Tax Study Committee ended two days of negotiations on August 26, during which state and national experts testified on the potential benefits and challenges of the abolition of income tax.
While most of these experts agreed that abolishing income tax would be beneficial, most of the conversation centered on how that revenue could be substituted to fund state government.
Income tax revenue was $ 1.9 billion for fiscal 2019, the last “normal” year before the influx of “Stimulus” and other COVID funds. That $ 1.9 billion accounted for nearly a third (32 percent) of the General Fund’s $ 5.6 billion budget. Corporate and franchise taxes rose another 8.5 percent ($ 488 million), but abolishing these taxes is not yet being considered. Sales tax (and associated “use tax”) made up 44 percent ($ 2.5 billion) of the General Fund’s budget.
The original tax reform proposal drafted by House Speaker Philip Gunn, which the House of Representatives passed earlier this year but passed away in the Senate, would have phased out and paid for the state’s income tax by removing the 7 percent sales tax on most items was increased to 9.5 percent percent. The sales tax on food, on the other hand, is to be halved from 7 to 3.5 percent.
Several business associations opposed the part of the speaker’s proposal that would have increased sales tax by 2.5 percentage points (the same increase as the proposed general sales tax increase) on various types of equipment, including manufacturing machinery and agricultural equipment. This would put the companies concerned at a competitive disadvantage compared to similar companies in other countries.
These items already have a lower sales tax rate than the 7 percent retail rate, but many economists believe that wholesale business should not be taxed at all because that tax is simply added to the price of the goods without the consumer realizing the actual amount of tax you are paying for one Product. It is better to collect sales tax on outright purchases.
Many retirees have complained that the speaker’s plan would increase their taxes since they are already not paying any income tax on their retirement income and the sales tax hike would hit them hard. The spokesman argues that the food tax cut will offset much of the other sales tax hikes for them as retirees spend a higher percentage of their income on groceries. A person who testified at the hearing said, based on analysis by a liberal Washington think tank, that income taxes should be increased to pay for the services the poor need, and an increase in VAT would harm the poor more than anyone else.
While Governor Tate Reeves, Spokesman Gunn and Lieutenant Governor Delbert Hosemann seem to agree with the principle that income tax should be phased out, details will be crucial. The governor has expressed a desire to phase it out without raising other taxes. This would be achieved by lowering the rate each year based on the previous year’s sales growth, which will take anywhere from 18 to 40 years depending on economic growth. This is contrary to the speaker’s plan. Hosemann did not put his ideas into concrete terms.
All of this leads to an interesting political battle in the coming months if leaders fail to come to an agreement ahead of the 2022 legislative session.
– Item credit to the Bigger Pie Forum –