The GOP-controlled House and Senate passed competing “compromise” plans on Tuesday to eliminate the state income tax and raise gasoline taxes — but the Senate only narrowly passed its plan with the help of four Democrats.
The proposals advanced by each chamber continue a debate over the potential risks and rewards of drastically altering the tax structure in the poorest state in the country as federal spending cuts loom.
Tuesday’s Senate vote raises the question of whether that chamber could pass a more aggressive income tax elimination proposal even if the Republican Senate leadership reaches and agreement with House leaders.
The legislative dynamics
The state Constitution requires a three-fifths majority of lawmakers to approve tax bills, so if Democrats Sarita Simmons of Cleveland, Juan Barnett of Heidelberg, Gary Brumfield of Magnolia and Angela Turner Ford of West Point had not joined the Republican majority to support the measure, it would have failed.
“You know what they call a medical school student who finished last in his class? A doctor,” Senate Finance Chairman Josh Harkins told reporters after the close vote.
Only a couple of votes could have derailed the bill in the Senate because four Republican senators voted against the measure, and four Republicans voted “present.”
Harkins said the razor-thin margin shows how fragile the coalition of support is in the 51-member chamber and how there isn’t an enormous appetite to accelerate the income tax elimination rapidly as the House proposes.
Some Democratic senators, including Minority Leader Derrick Simmons, appeared frustrated that four of their colleagues broke from them to ensure the measure’s passage.
“Time and time again, I’ve seen where (Democrats) have had the ability to exert our power, yet we have fallen short by not voting in solidarity with the working people of Mississippi,” Simmons told Mississippi Today.
Ahead of a Tuesday evening deadline, the House also passed an updated version of its original tax reform package in a 91-27 vote, with 11 Democrats crossing party lines in the Republican-controlled chamber to support the bill. Unlike the Senate, every Republican in the House chamber has voted to eliminate the income tax.
Debate centers on slashing state budget as federal cuts loom
Republican House Ways and Means Trey Lamar said the House proposal slashes state revenues to give working people tax cuts.
“This bill is the most substantial tax cut for Mississippians that this state has ever known or seen,” Lamar said.
House Democratic Leader Robert Johnson called the bill “grossly irresponsible” and “dangerous,” arguing it would hollow out the state’s budget at a time when the federal government is considering vast spending cuts to programs Mississippi relies on.
“We are the poorest state in the union, the lowest per capita income in the country … They are getting ready to put you in a situation where it doesn’t matter how much money they put back in your pockets,” Johnson said. “Be cognizant of the fact that you elected people to come in here and gut your public services, gut your public education, gut your public safety and gut your public health.”
Experts have told Mississippi Today that deep federal spending cuts, along with the elimination of the state income tax, could reduce Mississippi’s ability to fund services. Some also warn the shift to a more regressive form of taxation would hit poor and low-income Mississippians hardest.
Mississippi is perennially among the most federally dependent states, receiving nearly a 3-1 return for every dollar in federal taxes it pays. Both Republican and Democratic lawmakers have expressed fear of the economic impact of federal cuts.
The focus of future negotiations
Now that the two chambers have passed alternative tax cut plans, six lawmakers will likely try to work out a final agreement in a conference committee.
Going forward, the Senate is unlikely to accept a deal that increases the state sales tax and does not change the structure of the Public Employees Retirement System. The Senate is pushing a “hybrid” retirement plan to shore up the system financially by cutting benefits for future employees.
House Speaker Jason White said he plans to press the Senate to move off its “hard condition” of overhauling PERS. His caucus wants a dedicated stream of revenue for the retirement system. The House has proposed diverting most of the state’s lottery proceeds to PERS, or he suggested for the first time Tuesday that revenue from legalizing online sports betting could also help the system.
“The spot we’ve identified for additional revenue is mobile sports betting, where we’re losing to illegal gambling now,” White said. If (the Senate) wants to keep the amount of either gas tax or sales that has to be raised to offset this income tax (cut), then we should look at that as a valid place to look.”
Legalizing mobile sports betting has been another wedge between the chambers. The House has passed legislation this session to legalize the practice but the measure faces opposition in the Senate.
A look at the latest tax proposals
The new House Plan would:
- Fully eliminate the state income tax by 2037. The elimination would begin phasing in after the state next year finishes implementing another income tax cut it approved in 2022. The phase-in period would take a decade, beginning with a reduction from 4% to 3.5% and then lowering further from there.
- Cut about $2.2 billion from the state’s current $7 billion general fund. The state would also raise about $750 million through tax increases. But much of collected through tax increases would go to the general fund.
- Increase the state’s net sales tax from 7% to 8%. The revenue from this tax increase would provide $48 million annually to pay for infrastructure improvements via the State Aid Road Fund. The remaining money would go into the state’s general fund.
- Add a new 15-cents-a-gallon excise tax on gasoline. The tax increase would be phased in at 5 cents a year over three years. This would be added to the current 18.4-cents-a-gallon excise Mississippi motorists currently pay.
- Cut the sales tax on groceries from 7% to 5%.
- Increase the state’s “use yax,” which is imposed on goods purchased outside the state or online, from 7% to 8%.
- Create a new fund that gives those over the age of 65 property tax credits of $200 a year. The fund would be paid for by revenue from the use tax increase referenced above.
- Transfer $100 million per year from the state lottery system into the public employee retirement system.
The new Senate plan would:
- Decrease the 4% income tax rate by .25% each year from 2027 to 2030 and leave it at 3% in 2030.
- After it reaches 3%, the income tax would be reduced with “growth triggers” or at a proportional rate depending on the difference between the state’s revenue and spending plans that year.
- Reduce the sales tax on groceries from 7% to 5%.
- Increase the 18.4-cents-a-gallon gasoline tax by 9 cents over three years, for a total of 27.4 cents, then this would increase automatically based on the cost of road construction.
- Change benefits for government employees hired after March 2026 to a “hybrid” retirement that includes part-defined benefit and part-defined contribution.
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