When he was running for governor last year, Tate Reeves said he wanted to see an additional reduction in the individual income tax, which was already in the process of being cut.
This week, the Republican went even further. He says now he wants Mississippi to do away with the tax entirely.
What he didn’t say, though, is from where the money is going to come to keep public schools and state government fully operational.
This is how it usually is with tax-cut proponents. They are good on the details of what they want to eliminate — but foggy on where they will make up for the lost revenue.
Other states without a personal income tax answer that question, though. What they don’t get from income tax, they often grab instead from higher taxes elsewhere.
In 2016, an analysis by 24/7 Wall St., a financial news website, looked at the seven states that don’t have any personal income tax — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. (Tennessee and New Hampshire were not included because, although most residents in these two states don’t pay any income tax, they would if they had dividends or interest income.)
In the majority of the seven states examined, the tax burden shifts to consumption and assets — what you buy or what you own — when there is no tax on what you earn. States without an income tax have a greater than average dependence on sales and property taxes to fund government.
In Texas, for example, property taxes accounted for 40.4% of all state and local tax collections at the time of the analysis. Sales taxes accounted for another 31.9% of revenue. Those figures were significantly larger than the national average of 31.3% for property taxes and 22.5% for sales taxes.
The truth is, Mississippi’s income tax is not oppressive. By 2022, thanks to the tax cut that Reeves endorsed while lieutenant governor, residents in Mississippi will not pay anything on the first $5,000 of their taxable income (after exemptions and deductions), and the most they will pay after that is 5%.
That 2016 tax cut, which also included reductions for corporations, was back-ended. Its heaviest impacts start showing up over the next several years. It would be good to see how Mississippi adjusts to those reductions — plus the stifling effects of the pandemic on economic activity — before it thinks about cutting further.
But if there does turn out to be additional room to cut taxes, the place to go is the sales tax, not the income tax. The sales tax, particularly that on groceries, hits hardest on those least able to afford it. Yet Mississippi, with the highest percentage of people below the poverty level in the U.S., charges the highest sales tax on groceries in the nation.
Mississippi’s tax policy may need revising, but those revisions should be aimed at making it less cold-hearted. Cutting taxes on income but leaving them high on consumption would accomplish the opposite.