Empower Mississippi has released a new report that provides dynamic modeling under two scenarios for eliminating the income tax, a comparative analysis that demonstrates that states without income taxes can both sustain reasonable government spending and thrive economically, and some policy considerations for lawmakers weighing transformative tax reform.
Empower Mississippi began this project last year. It was authored by Jorge Barro, Ph.D., an economist, and Fellow in public finance at the Baker Institute at Rice University, Joseph Bishop Henchmen, a Contributing Fellow at Empower Mississippi and the Vice President of Policy and Litigation at the National Taxpayers Union Foundation, and Russ Latino, President of Empower Mississippi.
“Empower embarked on this effort to provide lawmakers academic research on the potential impact of eliminating the income tax in Mississippi, as well as actionable insights into how other states operate without income taxes,” said Empower President Russ Latino. “After performing the dynamic and comparative analysis, we are convinced that if structured correctly, the elimination of the income tax could have a profoundly positive effect for all Mississippians, allowing families to save more and invest more into their communities and growing opportunity.”
The dynamic analysis in the report was performed independently by Dr. Jorge Barro and shows that under either a scenario where income taxes were eliminated without upward adjustment in consumption taxes or in a scenario where income taxes were eliminated with upward adjustments to create neutrality, productivity would increase and both the economy and consumption would measurably grow.
Dr. Barro’s regressivity model shows that some of the concerns about regressivity are overstated when the proper time horizon is applied and is further mitigated by the fact that Mississippi already exempts purchases with food stamps from taxes. Under HB 1439, these effects would be further mitigated by cutting the grocery tax in half for all Mississippians.
The comparative analysis in the report demonstrates that Mississippi has struggled over the last decade, with the lowest median household income in the country, the second-lowest labor force participation rate, and stagnate real GDP and population growth. Meanwhile, revenue to the state government has increased by nearly a third, and Mississippi has the 17th highest tax burden in the country.
Comparatively, the nine states without an income tax have a tax burden that is roughly half that of Mississippi, while experiencing far greater revenue growth. This may seem counter-intuitive, but is a byproduct of economic and population growth in these states. The median household income in the nine income tax-free states is 56 percent higher than Mississippi’s and higher than the national average. The total economic growth in these states is a full order of magnitude greater than Mississippi’s, and considerably greater than the national average. Perhaps most importantly, these states have seen population growth of 13 percent over the last decade, more than double the national average and 6,500 percent greater than Mississippi.
Finally, the report offers analysis of how consumption taxes might be adjusted to ensure that government funding is sufficient to provide for core functions, effective use of triggers, and the importance of a strong fiscal rule to ensure long-term success.