Mississippi legislative leaders are primed to pass legislation next year to cut state taxes, but the question is whether they can build a consensus around one of the many proposals state leaders have put forward.
Mississippi’s Republican lieutenant governor, House speaker and Gov. Tate Reeves all want to slash taxes in some form, but they have different ideas. If the House and Senate are unable to reach an agreement early on during the 2025 session, it would likely lead to infighting over taxes similar to debate during the 2022 session.
House Speaker Jason White, a Republican from West who is one of the most fervent tax cut champions at the Capitol, is expected to introduce a package that will, at least, cut the grocery tax in half and phase out the income tax.
“We are hoping to construct a tax system that, yes, prioritizes certain needs in our state but it also protects and rewards taxpayers,” White said at the Mississippi Economic Council’s annual Hobnob event.
Mississippi is already phasing in a major income tax cut. After rancorous debate in 2022, lawmakers agreed to leave Mississippi with a flat 4% tax on income over $10,000, one of the lowest rates in the nation, by 2026.
Republican Lt. Gov. Delbert Hosemann, the president of the Senate, has publicly called for a reduction in the grocery tax but has been quiet about further cuts to the income tax. At 7%, Mississippi has the highest tax on groceries in the nation.
The state collects the grocery tax along with all other sales taxes, but remits 18.5% back to cities. For many municipalities, the sales tax on groceries is a significant source of revenue. If Hosemann wants to reduce the grocery tax without impacting cities, lawmakers could change the diversion amounts or appropriate enough money annually to make cities whole.
READ MORE: Senate panel weighs how much — or whether — to cut state taxes
The other complication for cutting the grocery tax is the state agency responsible for collecting taxes currently does not have a mechanism in place for accurately capturing how much money cities collect in grocery taxes. This is because the tax on groceries is the same as non-grocery items.
However, Department of Revenue Commissioner Chris Graham estimates that the state collects roughly $540 million in taxes from grocery items. If this tax rate is cut, it would take a major chunk out of the state’s coffers.
Abolishing the income tax would also take a large amount of money out of the state’s budget. The income tax currency makes up around 30% of the state general fund.
READ MORE: Gov. Tate Reeves urges lawmakers to use unspent state revenue for tax cuts
The push by Republicans for eliminating the income tax comes at a time when there is still a growing list of spending needs in Mississippi, a state with abject poverty, water and sewer and other infrastructure woes and some of the worst health metrics in the nation.
Representatives from the Legislative Budget Office, the group that advises lawmakers on tax and spending policy, told lawmakers earlier this month they will also be faced with spending decisions on the rising costs in the public employee retirement system, the Medicaid budget, public education, state employee health insurance, and state infrastructure projects.
State agencies, including the employee retirement system, also requested $751 million more for the coming budget year.
READ MORE: Most at Speaker White’s summit want tax cuts, but some say ‘baby steps’ needed
House Minority Leader Robert Johnson III of Natchez said he feels like the Republican leadership should examine the state’s tax structure as a whole instead of simply looking to cut certain taxes. Still, he would support reforming the tax structure as long as core government services would not be disrupted.
“We’re for taking tax pressure off of people altogether, but it should be done under the umbrella of looking at the entire tax structure without negatively impacting the tax structure as a whole,” Johnson said.
READ MORE: Interest on unprecedented amounts of federal cash keeps state budget afloat
Republican Gov. Tate Reeves has also said multiple times over the past two years that he would likely support any tax cut bill that reaches his desk, but his priority is abolishing the state income tax.
The Legislature will convene for its regular session at noon on January 7.
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