Speaker of the House Philip Gunn (R) held a press conference on Tuesday to discuss the particulars of HB 1439, the plan that would phase out the state’s income tax over 10 years.
“Anyone in Mississippi who pays an income tax, today is the day that we start to eliminate that burden for you,” said Speaker Gunn. “This entire plan is based upon what I deem to be sound tax policy.”
Several years ago, meetings were held between members and leaders in tax policy, including The Tax Foundation and other conservative think tanks. Gunn said the advice lawmakers received was to move away from taxes on productivity and move toward taxes on consumption.
“Their advice was that the better tax policy, the more sound tax policy for states is those that have a tax based upon consumption. Sales tax, use tax, things of that nature. That is the foundation for what we’ve attempted to do with this plan,” said Speaker Gunn.
He said conversations have been had with members of the Senate about the bill but no communication has occurred between himself and Governor Tate Reeves at this time. Reeves has been a supporter of the phase out of the income tax, but has spoken out against an increase in taxes to do so.
The bill is expected to come to the floor before the end of Tuesday, with deadline being Wednesday.
UPDATE: The bill passed by a vote of 83 to 34 in the House on Wednesday afternoon.
This plan is entitled the Mississippi Tax freedom Act of 2021. When fully phased in, it will give back $1.9 billion in income and grocery tax to Mississippi residents. The first phase of the plan with immediately eliminate the first $50,000 in income for an individual and $100,000 for a married couple. This is roughly 60% of taxpayers in the state.
By year five, $100,000 for individuals and $200,000 for married couples will be exempt as long as the triggers set in the bill are met. The intent is to get rid of all state income taxes by year 10.
Teachers will also benefit from the legislation. In the bill is a teacher pay raise. For any teacher that makes $50,000 or more they would get an immediate $3,000 pay raise said Gunn. The numbers trickle down as the income changes.
“That puts the control of the tax in the hands of the consumer. Consumers will now have control of how they spend their dollars. We strongly believe they know how to spend their money a lot better than the government does,” said Gunn.
The bill also reduces the grocery tax from 7% to 4%. It will then be reduced again by 1% by FY 2027. Cities who rely on these taxes for normal operations will be kept whole by maintaining the current 18% diversion from remaining grocery taxes.
In order to proceed with the phase out, triggers outlined in the bill must be met. There must be approximately $60 million of General Fund revenue growth every year which will be devoted to the income tax elimination. If the growth is met, the elimination will proceed; if it is not, it will be delayed another year.
There will also be an increase on sales tax from 7% to 9.5% in the state, a move lawmakers said should aid in the stabilization of the budget. Products like cigarettes will also face an additional $0.50 tax, and other tobacco product tax rates will increase from 15% to 25% of the manufacturer’s wholesale price.
For an individual making $50,000 it would be an immediate savings of $2,035. The correlating amount of spending subject to sales tax that would consume those savings would have to equal $81,400. Those numbers do not include additional savings from the grocery tax.
Representative Robert Johnson (D), who leads the House Democratic Caucus, spoke on the bill as well. While he said they are still looking over the bill, he is encouraged at the progress made to do this.
“What I like about the bill is you’re providing a tax cut for working people,” said Johnson. “This is not a cut for big business.”
He said he is also encouraged that people who have not been paying a regular amount of tax will now be taxed at a reasonable rate. He said the Democratic Caucus’ biggest concerns have been addressed in the bill, particularly with the cut in grocery tax.
“I’ll tell you as a Democrat I keep looking at this bill and trying to find the ‘trojan horse’ or trying to find the trick because it, I don’t want to get them in trouble, but it sounds more like something I would write,” said Johnson.
Chairman of Ways and Means, Representative Trey Lamar (R), who brought the bill out of committee yesterday, said the bill also sets up a new fund – the “Budget Stabilization Fund.” The first six months after the change the increase in sales tax will go there. The fund will remain in place for the duration of the phase out process in the event that there is any shortfalls in the budget during that time.
The budget will not be impacted by this change until FY 2022, which begins July of 2021.
He said any increase in taxes are not new under this bill. If an industry was taxed at zero, they still will be, but those taxed at a lower rate will increase, like manufacturers, automobiles, airplanes and farm equipment.
Lamar said one reason there was a push to include a grocery tax was to assist retired Mississippians who are not paying an income tax currently and who live on a fixed income.
“A lot of retirees are on fixed income. A big portion of their disposable income is spent on groceries and those necessities. We are very proud to have the grocery tax being cut in half with this plan. We feel like that will help them,” said Lamar.