Income tax change could reduce the state’s case for borrowing money


One of the issues most watched by Mississippians when the legislature meets on Jan. 4 will be Gov. Tate Reeves’ proposal to eliminate personal income tax.

But Mississippians won’t be the only ones watching. Prominent New Yorkers will also be on the lookout who may impact the state’s ability to issue and pay debts to fund long-term projects.

“Mississippi’s general fund is based on a diverse set of revenues… however, there appears to be value in making a significant change to the state’s tax structure, with the governor and lawmakers proposing various means to reduce or d “Eliminate the IRP,” Fitch, one of the three major credit rating agencies, said in an analysis of Mississippi’s financial condition. “Fitch will continue to monitor developments related to the proposed changes. A structure that results in slower growth, a more volatile income system, or that results in a discrepancy in income from spending needs would be a negative credit consideration.

Fitch’s analysis is important because if the agency gives a state a bad credit rating, it will become more difficult for the state to issue bonds.

Mississippi General Fund tax revenue for the last fiscal year was $ 6.7 billion. If the state’s personal income tax had been eliminated, as Reeves wants to do in the next five years, the total would be $ 4.5 billion.

Take away the personal income tax revenue and the state would have roughly the same amount of revenue it received before 2010.

Essentially, without the personal income tax, political leaders in Mississippi would try to fund the state’s needs for health care, education, and other areas at today’s costs with income from more than ten years ago.

Inflation over time normally results in an increase in the costs of goods, wages and, yes, revenues received by government entities and private businesses. If a tax is phased out as Reeves wants, overall revenue might never decline from year to year, but that ignores the cost of inflation. With the phasing out of the tax, the state’s ability to meet the rising costs of goods and services is weakened.

Reeves maintains that the phase-out of income tax will stimulate economic growth, leading to increased revenue collected.

“The elimination of personal income tax will further help us fuel Mississippi’s economic engine for the next 100 years,” the governor said in an account setting his goals for the 2022 session.

But state economist Corey Miller said the research indicates that “changes in state taxes in Mississippi are likely to have marginal effects on economic growth, employment and population.” In a report to lawmakers, Miller added that studies have been inconclusive, to some extent, on how tax policy relates to economic growth.

But in general, in a small state like Mississippi, national economic conditions play a more important role than tax policy. Miller said various studies “suggest that state spending on primary, secondary and tertiary education as well as infrastructure can promote long-term economic growth.”

But Reeves argues that state revenues are booming and some of the surplus should be used to begin phasing out income tax.

Real incomes may be growing at an all time high.

In the 1990s, revenues also grew at an all time high mainly due to the introduction of casino games in Mississippi. But by the end of the decade, income growth was slowing, soon followed by a national recession.

This recession centered on America’s first large-scale exodus of low-paying manufacturing jobs to foreign countries. Mississippi was particularly hard hit because it had more of these jobs per capita than any other state.

The result was, for the first time in the modern era, that the state collected less revenue a year than the year before, forcing lawmakers to make significant budget cuts.

Tax collections didn’t really bounce back until Hurricane Katrina hit the Gulf Coast in 2005, prompting a massive influx of federal funds, insurance payments, and a large-scale rebuilding effort. which has led to an increase in tax collections for the state.

The latest growth, according to many economists, is being spurred not only in Mississippi but across the country by COVID-19 and the massive influx of federal funds that states have received due to the pandemic.

Reeves believes that with this growth, the time has come for the biggest tax cut in the state’s history.

The eyes of Mississippi and other key parts of the country will be watching to see if lawmakers agree.

This analysis was carried out by Mississippi today, a non-profit news organization that covers state government, public policy, politics and culture. Bobby Harrison is the senior reporter for Capitol Hill Mississippi Today.


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