Maybe Philip Gunn was just being theatrical this past week when Mississippi’s speaker of the House said it was now or never to pass sweeping tax cuts.
The statement — “This is the opportunity to do something right now that we will never have again in our lifetimes” — was farcical, though.
Barring a nuclear holocaust — not something to joke about given the current tensions between Russia and the West over the invasion of Ukraine — Mississippi lawmakers have had and will have plenty of opportunities to radically alter the state’s tax code.
They had a chance, for instance, last year when Gunn unveiled his first pitch to eliminate the personal income tax. They rejected it.
If the House and Senate cannot reach an agreement on tax cuts before this year’s regular session ends in early April, there’s a good chance that Gov. Tate Reeves will call them back to address the matters in a special session.
If nothing passes this year, it will be back on the table next year.
It is, in fact, contradictory for Gunn to argue that Mississippi’s currently robust financial condition makes it imperative that lawmakers act immediately while at the same time postulating that the state will remain in such good financial shape that it can afford to severely reduce a main stream of revenue indefinitely into the future.
Either Mississippi’s budget surpluses are temporary or they are permanent. If they are temporary, then what Gunn and the House are proposing is financially irresponsible. If they are permanent, then there’s no rush to pass something until there’s a consensus not only among lawmakers but also among economists that the state has structured the tax cuts correctly.
Such further deliberation is unlikely, however. Both the House and the Senate have put too much into this issue to walk away from the Capitol without having passed some form of tax reduction.
They are just playing chicken to see which chamber’s leader — Gunn or Lt. Gov. Delbert Hosemann — flinches first.
Last week, both chambers amended their initial proposals to respond to the other chamber’s objections.
The House reduced the size of the first year’s income tax cut and extended, from 10 to 15 years, how long it would take before the income tax was completely eliminated. It dropped the idea of cutting car tags in half. It also set aside $500 million extra in reserve to cover any budget shortfalls should the income tax cut not produce the economic boom on which proponents are relying.
The Senate, which initially only wanted to eliminate the state’s 4% income tax bracket, now is offering to reduce the top 5% bracket to 4.6%.
But the House and Senate also added other new elements which increase the riskiness of what they propose.
The House abandoned the idea of raising the sales tax, which was supposed to offset some of the cost of cutting the income tax. In doing so, the House plan backs away from the conservative ideology, to which Gunn subscribes, that taxation should be based mostly on consumption, not on income.
The Senate and Hosemann added another temporary tax reduction, proposing to suspend for six months the state’s fuel tax of 18.4 cents per gallon in response to the recent steep rise in gasoline prices.
That’s probably not the worst idea in the world, since the state would reimburse the Mississippi Department of Transportation for the $215 million the temporary tax cut would cost, and thus keep road and bridge projects from being stalled. There is, however, the danger that once the fuel tax is lifted, there will be political resistance to reinstating it six months down the road.
If anything, the fuel tax needs to be raised, not lowered. The tax, which has not been adjusted since 1987, was not keeping up with even the modest inflation of the past few decades. Now that inflation has really kicked in, the tax is going to be even less adequate. But as long as gas is staying around $4 a gallon, it would be political suicide to raise the tax. It’s too bad that lawmakers blew the perfect opportunity to do so a couple of years ago when gasoline was running about $2 a gallon and motorists would have hardly noticed an increase in the
Mississippi has a backlog of unsafe bridges and crumbling roads. To be sure, the $3.5 billion the state will receive over the next five years from the federal government’s massive infrastructure plan will help improve the situation. When those dollars are spent, however, the state will face the same structural problem it has seen for the past decade or more in caring for its transportation infrastructure: an insufficient revenue source to meet the need.
On a grander scale, that is precisely the predicament that eliminating or slashing the income tax presents. The current budget surplus masks the long-term effect of what is being contemplated. When that surplus, though, is eaten up by tax cuts, teacher pay raises and other spending hikes, or just dissipates as the federal spigot is turned down, the money for government operations will have to come from somewhere else, or programs and payrolls will have to be cut.
And that point, when Mississippi regrets the decisions that created a severe budget shortfall, will occur in current lawmakers’ lifetimes.
- Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
