Budget crisis fears as Mississippi GOP pushes for record tax cuts

Another great tax cut debate has begun in the Mississippi Legislature, a recurring theme in recent years with state coffers relatively flush and the economy cooking just below a boil.

The broad strokes of the debate, also a recurring theme, are Republican House leaders want to overhaul the entire state tax structure — eliminate the income tax, increase sales and gasoline taxes and provide a net huge tax cut, $1.1 billion when all in. Senate leaders urge more caution, to cut taxes again but take smaller, prudent steps and wait for the dust to settle on record tax cuts recently passed and still being phased in.

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Republican Gov. Tate Reeves is on the sidelines, appearing to cheer on the House income tax elimination plan, but leery of any tax "swap" increase in sales or gasoline taxes as offsets. He has in the past voiced strong opposition to any such increase even if the net is a cut for most Mississippians.

Those who urge caution in cutting or overhauling the tax structure mention past experience, and they don't have to look back too far. Eight years ago, from a combination of dozens of tax cuts the Legislature approved and a slumping economy, the state saw a budget crisis that resulted in severely underfunded schools, state government layoffs, a near halt to building new roads and highways and problems maintaining the ones we have, too few state troopers on the highway and cuts to most major state services.

Lawmakers in a few years leading up to the slump had enacted more than 50 tax cuts, from large to small, including what was at the time the largest tax cut in state history to be phased in over years. But their spending had increased.

Then-Gov. Phil Bryant was forced to make emergency mid-year cuts to the state budget five times and to raid the state's "rainy day" savings account from 2016-2017. Mississippi law requires the state to operate with a balanced budget, and when shortfalls top 2%, the governor is required to make cuts to true the budget.

Mississippi, it has been said, is often first in and last out when it comes to a recessionary economy.

But bad times, like good times, don't last forever, and the last four years have seen record revenue for the state. And record spending. Since those economic slump days of 2016 and 2017, state general fund spending has risen from about $6 billion to more than $7 billion, with a hefty $1 billion surplus to boot.

House leaders say the time to enact a long-championed tax structure overhaul and elimination of the income tax is now — do it while we can.

"If you say, 'How can we do that?' I'd say look at the last four years," said House Ways and Means Chairman Trey Lamar, author of the latest House tax overhaul plan. "We can do it because we've shown we can do it."

Tax cuts, and structural changes, can have a stimulating effect on the economy.

But it would appear the current push to cut taxes or overhaul the structure does not include any major belt tightening with state government. And much, perhaps most, of the current largesse is a result of the federal government pumping trillions of dollars post-pandemic into the national economy and billions into Mississippi's. That spigot will likely be turned off with a new administration in Washington. Will Mississippi's good times continue to roll? House leaders appear to be betting on it.

But Senate President Protem Dean Kirby, the longest serving Republican in the Legislature, has seen the other effects that ill timed or poorly thought out cuts can bring, especially coupled with a faltering economy.

"I've been here long enough I've seen the ups and downs," Kirby said on Mississippi Today's "The Other Side" podcast. "What goes up comes down. A majority of the people in the Legislature — now including, I hate to say it, the leadership — haven't been here during the down periods ... and right now we're here in the beginning of a down period. We were, what, $116 million below (projections) last month ... We need to be very, very careful that we don't go through the same we have in the past where we would cut everyone's budget and every state agency and schools."

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Senate leaders including Lt. Gov. Delbert Hosemann say they, too, want tax cuts, just more modest ones. And they do not appear onboard with the swaps and shifts of increases in other taxes. Hosemann does support a cut to the tax on groceries, or unprepared food items.

In large part because the House plan includes a long called for steady stream of money for transportation infrastructure — a 5% sales tax on gasoline — and a cut in taxes on groceries, many House Democrats appear to be on board with the proposal. It's unclear whether Senate Democrats would lean more towards a House or Senate approach.

The proposed 5% tax on gasoline — which would be about 13 cents a gallon with current average prices — along with a 1.5-cents-on-the dollar increase in the state's 7% sales tax will perhaps be the toughest sell with Mississippi citizens. Particularly, retirees not paying income taxes now might view this as a net hike for them. And the House restructuring would make the state's taxing more "regressive," which would hit people with limited income and those of modest means the most.

It would appear some tax cuts are in the offing with the 2025 Legislature from its GOP supermajorities in both chambers.

The debate will not be on whether to cut, but how and by how much — a battle of moderation versus bold action.

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