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A group of senators on Monday wrestled with the question of how much to cut state taxes or if at all, setting off a major policy debate at the Capitol ahead of next year’s legislative session.
The Senate Study Group on Budget Policy requested testimony from the state government’s top experts on budgetary, economic and fiscal policy in preparation for what is almost certain to be an intense debate in January over how much to cut state taxes while addressing the need to improve government services need to balance financing.
Senate Finance Chairman Josh Harkins, a Republican from Flowood whose committee has jurisdiction over tax policy, told Mississippi Today that he wanted senators to have the basic facts in front of them before helping decide next year whether Mississippi should cut taxes.
“We’re going to get a tax cut for the next two years whether we do anything or not,” Harkins said. “I just want to make sure we have all the facts for people so they understand we have a clear picture of how much revenue we’re bringing in.”
Mississippi is already in the midst of a major tax cut. After raucous debate in 2022, lawmakers agreed to phase in an income tax cut. In two years, it will leave Mississippi with a flat 4% tax on income above $10,000, one of the lowest rates in the country.
However, the top two legislative leaders, Lt. Gov. Delbert Hosemann, who oversees the Senate, and House Speaker Jason White, both recently said they want lawmakers to consider new tax-cut policies.
Hosemann, the Senate Republican leader, has said publicly that he would like to see the state’s grocery tax, the highest of its kind in the country, reduced, although he did not specify how much of a reduction or how long it would last . to implement the cuts.
White, a Republican from the West, said last week that he would like to see the state’s 4% income tax phased out and the state’s 7% grocery tax cut in half over time.
“We hope to build a tax system that, yes, prioritizes certain needs in our state, but that also protects and rewards taxpayers,” White said last week.
But collecting accurate data on state grocery taxes is difficult, and state lawmakers must grapple with a laundry list of spending needs and obligations, based on testimony from state agency leaders on Monday.
Mississippi currently has a 7% sales tax, which is applied to groceries. The state collects the tax, but returns 18.5% to the cities. For many municipalities, sales tax is an important source of income.
If state lawmakers want to cut grocery taxes without impacting cities, they can pass a new law to change the diversion amounts or free up enough money to nurse municipalities back to health.
State Commissioner Chris Graham said the Mississippi Department of Revenue, the agency responsible for collecting state taxes, has no mechanism to accurately record how much money cities collect in grocery taxes. This is because the tax on groceries is the same as on non-grocery items.
However, Graham estimates that the state collects about $540 million in taxes on groceries.
The other problem lawmakers would have in passing significant tax cuts is a growing list of spending needs in Mississippi, a state with grinding poverty, water and sewer and other infrastructure problems and some of the worst health records in the country.
Representatives of the Legislative Budget Office, the group that advises lawmakers on tax and spending policy, told senators that lawmakers will also face rising costs in the state employee pension system, the Medicaid budget, public education, and employee health insurance. of the state and state care. infrastructure projects.
READ MORE: As lawmakers try to cut taxes, Mississippi’s mayors and county leaders outline infrastructure needs
Government agencies, including the Employee Retirement System, also requested an additional $751 million for the upcoming budget year.
“That’s the billion-dollar question, I think,” said Senate Appropriations Chairman Briggs Hopson, a Republican from Vicksburg. “How can we finance basic government services?”
Harkins and Hopson said the committee would likely meet again before the Legislature convenes Jan. 7 for the 2025 session.
A House committee on tax cuts has also held hearings, and White held a hearing in September Summit on tax policy.
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