Income tax cuts unlikely to pass this legislative session. See why

Even though several Republican lawmakers ran on promises to hammer home further personal income tax cuts during the state elections, interest to bring forth legislation this year may have been put on the back burner.

Several lawmakers told the Clarion Ledger earlier this week that a significant income tax cut bill being requested to be written before the Monday deadline is not likely to happen as the Senate and House of Representatives continue to lobby and advance other legislation such as Medicaid expansion, K-12 education funding and election reform bills, to name a few.

In 2022, the Mississippi Legislature passed House Bill 531, the largest personal income tax cut in state history. That cut began being phased in July 1, 2022, lowering individual income taxes from 5% to 4.7%. In 2025, the cut will phase the tax down to 4.4% and then again in 2026 to 4%.

In November, State Economist Corey Miller told the Joint Legislative Budget Committee that the state economy is expected to grow more than projections at the beginning of the 2023 indicated, but slower future economic growth, combined with the effects of additional decreases in the individual income tax rates, should also lead to a slowdown in general fund revenue growth.

Miller told the Clarion Ledger Monday that as of the past fiscal year, personal income tax contributed $2.5 billion to the state general fund, which lawmakers use as a funding source for various appropriations, funding and general bills.

Miller said that if the state were to implement a complete income tax cut, it would need to evaluate its current spending habits relative to its revenues on top of federal aid that Mississippi received in the form of American Rescue Plan Act money. After the COVID-19 pandemic set in, many states received hundreds of millions of dollars in ARPA funds, and Mississippi got $1.8 billion from the federal government.

"We've seen increases in spending in the past couple of fiscal years that have not kept up with the increase in revenues now that we're slowing," Miller said. "That gap will probably tighten, but that is also going to depend on where the legislature decides to spend its budget."

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Miller said a cut would have relatively insignificant positive impacts on the state economy by way of sales tax. Several lawmakers including former House Speaker Philp Gunn often said that additional revenues in sales tax would more than make up for the loss in income tax. At the time of its passage, it was estimated that going down to 4% would decrease personal income tax revenues by $500 million.

"We've slowed down from where we were (in 2022)," Miller said. "A lot of states have implemented tax cuts during that time, and that contributes to some of this lower revenue growth. Overall, I think if we move further away from that COVID era of support, we will just see slower revenue growth than we did."

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Even though HB 531 was passed with bi-partisan support two years ago, interest for further legislation could be waning as lawmakers survey the impact the cuts have on the state's general fund.

Senate Finance Committee Chairman Josh Harkins, R-Flowood, told the Clarion Ledger he wouldn't have much appetite to consider another income tax cut bill this year or until the current tax cut is fully phased in.

"We're in the process of a cut that's going to take four years when done, and when that cut is fully implemented, it will be down to 4%," Harkins said. "All the tax brackets will also be fully implemented from our 2016 tax cut, phasing out the franchise tax. We have this year and two more years of implementing the tax cut we passed two years ago. I don't see a need to do anything this year. We've got cuts in place. We've got, a lot of issues in front of us. I don't see us speeding it up."

In a written response to the Clarion Ledger, Republican Lt. Gov. Delbert Hosemann echoed Harkins' views on the topic.

"Last term, the Legislature implemented the largest tax cut in Mississippi history," Hosemann said. "We anticipate reviewing the income tax rate again once this cut is completely phased in. Right now, Mississippi’s income tax rate is extremely competitive across the nation.”

Both Hosemann and Harkins advocated in 2022 for a phased in tax cut rather than an immediate one, which Republican Gov, Tate Reeves at the time criticized.

Reeves did not respond to requests for comments as to whether his office is lobbying the Legislature for an income tax bill this year.

Corey Custer, Reeves deputy chief of staff, told the Clarion Ledger earlier this month that Reeves is still hopeful that such legislation will still get filed, even if it isn't this year.

"Gov. Reeves believes the single most impactful act to grow Mississippi’s economy, and our population would be the full elimination of our personal income tax," Custer said. "The state has collected billions of dollars in excess revenue in recent years and the governor believes we should let our taxpayers keep more of their money they have worked so hard to earn."

Custer said there is still time for an income tax cut bill to get filed, and that Reeves would prefer lawmakers to focus on that rather than more on what he calls "government welfare", such Medicaid expansion.

"The governor remains hopeful that the Republicans who control the Legislature will work on issues like eliminating taxes and rewarding work, while discouraging programs that increase government dependency and welfare," Custer said.

But Reeves isn't the only one gunning for another tax cut.

House Ways and Means Chairman Trey Lamar, R-Senatobia, said he is actively working on ways to bring forward another income tax cut, but whether that happens this year or next is still up in the air.

"I'm 110% interested in the eventual elimination of the individual income tax, I call it the tax on work," Lamar said. "In the state of Mississippi, I believe we can get there in a reasonable amount of time."

Lamar said that House leadership simply has other priorities at this time, such as a $3 billion appropriations bill that was passed last week to fund the House's replacement for the Mississippi Adequate Education Program, the INSPIRE Act, as well as Medicaid expansion.

However, Lamar said he is still dedicated to elimination of the state's personal income tax.

"The elimination of the income tax in Mississippi would be a tremendous economic boost to the workforce of our state and, in turn, our state's economy," Lamar said.

Republican House Speaker Jason White's office told the Clarion Ledger it received questions regarding his interest in future personal income tax cuts but did not respond by press time Friday afternoon.

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Grant McLaughlin covers state government for the Clarion Ledger. He can be reached at gmclaughlin@gannett.com or 972-571-2335.

This article originally appeared on Mississippi Clarion Ledger: Mississippi Legislature unlikely to pass new income tax cut this year