MS House passes income tax cut after nearly 2-hour debate. Will Senate pass it next?

Democrats concerned about impact of raising taxes on local populations

The Mississippi House of Representatives passed a $1.1 billion tax cut bill on Thursday after nearly two hours of debate, sending it on to the Senate where leadership is considering a starkly different approach, and thus is unlikely to pass the House version.

House leadership after the vote said there really isn’t much room for compromise, but there is hope that because Senate leadership wants to cut taxes, both sides can hopefully come to an agreement.

“I’m encouraged by the fact that that (Lt. Gov. Delbert Hosemann) is talking about cutting taxes, I think that’s a good place to start, as opposed to somebody who wouldn’t,” House Speaker Jason White,R-West, said. “Now maybe we’ll figure out the best way to get there in this process.”

House Bill No. 1, dubbed the Build Up Mississippi Act, passed with 88 votes. Of them, at least nine were Democrats and two were independents. There were 24 no votes, consisting only of Democrats.

“It’s bipartisan to some extent. And you saw a lot of people, maybe they didn’t vote yes, they didn’t vote no, either,” White told reporters after the vote. “I’m proud of my Republicans for speaking as one, as a caucus, that this is important to them and to their constituency. It’s a good, strong vote for us, and it’ll be a strong position for me as speaker to advocate for its passage and advancement on the other end of the building.”

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If passes both chambers as is, the bill would:

• Eliminate $2.2 billion in income tax revenues over 10 years. The cut would become active once the state’s income tax is phased down to 4% by Fiscal Year 2027.
• Reduce state sales tax on groceries from 7% to 2.5% while adjusting tax structure on other items to offset the costs.
• Removes state sales tax diversions to municipalities and replaces it with a local-option 1.5% local sales tax. Cities will have the option to opt-out of this tax structure. Lamar said this will result in local tax revenue increases across the state.
• Sales tax collected at 1.5% in counties will be diverted to road and bridge infrastructure needs at the county level.
• Add a fuel sales tax of 5% on retail sale of gasoline. This would be in addition to the state fuel tax already imposed. Lamar said this would add $400 million to the state budget, and all of those additional funds would go to the Mississippi Department of Transportation for road and bridge projects.
• The $80 million that was going to MDOT per year from gambling revenue will now be headed toward the Public Employee Retirement Systems of Mississippi to address a $25 billion deficit in future retirement benefits.
• Establishes a “budget stabilization fund” that will act as a secondary rainy-day fund.

“This is all about 10 years later, we’re finally at a place where we can tell the hard-working people of Mississippi that we are going to eliminate the tax on work for you, your children, your grandchildren and all future generations,” House Ways and Means Chairman and bill sponsor Trey Lamar, R-Senatobia, said.

The bill, however, will not include an income tax cut for sex workers in Mississippi, who will be taxed at 5% of their income once the tax cut is fully phased in.

Before voting on the bill, several Democrats questioned whether the tax package would actually end up costing the state more money down the road and causing revenue shortfalls. They also questioned whether moving to a consumption-based economy would result in poorer people paying more money out of pockets because of increases in costs due to the new gas tax and sales tax model.

Others pointed out growing needs to repair and replace existing government structures such as schools and offices.

“Has any thought been given, or was any thought given about not only for schools, but the age of infrastructure of all of the state buildings across the state?” asked Rep. Bryant Clark, D-Lexington.

Rep. Omeria Scott, D-Laurel, offered an amendment to just cut the sales tax immediately, calling on Republicans to not wait for the end of the 10-year phase-in of the tax cuts as proposed in the bill, but it was defeated.

After 2016 when the state passed several tax cuts, revenue shortfalls ensued, causing former Gov. Phil Bryant to make emergency budget cuts several times. Numerous county Mississippi State Department of Health County offices closed and state grant matches for federally funded infrastructure projects were put at risk.

Under the House plan, sales taxes excluding groceries would essentially amount to 8.5%, which still puts Mississippi at a lower sales tax than its neighbors.

House tax plan explained: MS House set to take up historic $1.1 billion tax cut this week. How it would affect you?

House Speaker Jason White told reporters after the vote that he is optimistic about working with the Senate leadership, but he said he does not intend to compromise on fully eliminating the income tax or establishing infrastructure revenue streams.

Grant McLaughlin covers state government for the Clarion Ledger. He can be reached at gmclaughlin@gannett.com or 972-571-2335.