Tax cut supporters’ numbers might not tell the whole story

Politicians often depend on numbers to make their argument. But numbers can be confusing and misleading.

Supporters of eliminating the income tax cite a lot of numbers to bolster their contention that the state can afford to phase out the tax.

Both Gov Tate Reeves and House Ways and Means Chairman Trey Lamar, R-Senatobia, recently cited some of those numbers during House Speaker Jason White’s daylong summit on the state’s tax structure. While White stressed that the summit was a “fact finding” mission, it is no secret that the speaker, Lamar and Reeves all are strong advocates of eliminating the state’s personal income tax.

The income tax accounts for between 25% and 30% of total general fund revenue even after the $145 million cut to the tax in 2016 followed in 2022 by a $525 million income tax cut that is still being phased in.

At the summit Reeves used the 2016 and 2022 income tax cuts “to dispel the myth” that complete elimination of the income tax would curtail jobs growth.

Since those previous two cuts, “our economy is thriving, private sector investment in our state has shattered records, and our unemployment rate is at an all-time low with more people working than ever before,” Reeves told summit goers.

The myth the governor cited – that cuts to the personal income tax would curtail jobs growth – has not been prevalent during debate of the issue. Instead, the main debate is whether eliminating such a large source of revenue would make it difficult for the state to provide vital services, such as for education, health care and law enforcement.

But the governor pointed to recent success in luring major economic development projects to the state, such as Amazon Web Services to Madison County and a plant to build electric batteries to power commercial vehicles to Marshall County. Both plants are major wins for the state.

But more to the point, Mississippi was in the bottom five states in the nation with jobs growth of 0.7% in 2023, according to the Bureau of Labor statistics.

 Perhaps that anemic jobs growth should not be blamed on the past tax cuts, but by the same token it is difficult to argue the tax cuts are spurring jobs growth.

While Reeves touts the state’s low unemployment rate, he fails to mention that Mississippi has the nation’s lowest workforce participation rate.

That might be why some business representatives at the summit cited workforce training, not tax cuts, as the top issue.

Lamar, on the other hand, made the forceful arguments that state services would be OK if the income tax is eliminated.

Since 1999, Lamar said, the state has averaged annual state general fund revenue growth of 3%. He said 3% growth equates to an extra $230 million per year – more than enough money from growth to afford to phase out the income tax.

In 1999, the total state general fund revenue was less than half of the $7.6 billion generated now by various taxes, primarily the sales tax and income tax. And 20 years from now, if the income tax is not eliminated, 3% will be a lot more than it is now.

Perhaps a simpler way to look at the numbers is that the tax on income generates almost 30% of state general-fund revenue.

When the $525 million 2022 tax cut is fully phased in, the income tax still will be the second largest source of general-fund money, generating about $2.2 billion annually, according to Senate Finance Chairman Josh Harkins, R-Flowood.

Plus, an important item to remember is that the $2.2 billion is in today’s dollars. A decade from now, two decades from now, the same levy on income will generate much more than $2.2 billion.

At White’s tax summit, Harkins pointed out the state has received an additional $33 billion in COVID-19 relief funds. That money went to state government, local governments, businesses and individuals and created a massive, unprecedented boon in state revenue.

That has generated tremendous surpluses, though state revenue collections have been slowing significantly during the past two years.

Even with the slowdown in revenue, the state still has tremendous reserves that make the beginning of the phase in of elimination of the income tax doable in the immediate future.

So, it is likely that no consequences of the tax cut will be felt during the remainder of Reeves’ tenure.

But the question is whether the state can still deal with losing more than one-fourth of its general fund revenue a decade or two decades from now when the federal government money spigot is not flowing so freely.

What will the numbers say then?