Determining the extent of the income tax repeal has been influenced by many factors. However, among the most significant of these factors is determining a balance. The state needs a balance that gives Mississippians impactful tax reform while maintaining a fiscally responsible budget. Without keeping this balance, the tax reform proposal will either focus on the state budget so much that it does not give meaningful tax cuts. Or the tax cuts will go so far that government budgets are jeopardized. This is the paradigm that the House and Senate tax plans should be reviewed through.
Comparing the benefits of each plan for individual Mississippians
In the first place, it is essential to consider how large a tax cut would need to be in order for it even to make a difference in the lives of Mississippians. To quantify the impact that each tax reform package could have, it can be helpful to compare tax cuts against what the private sector defines as a meaningful pay raise.
According to the Conference Board, a world-respected analytics organization that tracks pay raise trends, median salary increases sit at approximately 3.5 percent. In other words, income increases substantially below this amount are below what the private sector might consider to be a meaningful increase in income.
Under the House plan, a Mississippian making a gross income of $40,000 a year would get an approximate $1,500 reduction in taxes through eliminating the income tax, according to a summary published by the House of Representatives. This translates to an approximate net income increase of 3.8 percent. Thus, such an increase would be something Mississippians could genuinely benefit from, just as they might benefit from a similar pay raise at work.
This is contrasted with the Senate plan. Under the Senate plan, a Mississippian making a gross income of $40,000 a year would get an approximate $260 reduction in taxes. This would be a mere 0.65 percent net income increase, which is hardly something that would bring substantial tax relief. In addition, although the Senate plan removes the 4 percent bracket from the income tax, there is no path in the plan that aims towards the total elimination of the state income tax.
A broad tax cut cannot be called transformative for Mississippi incomes if it is not even the equivalent of a basic pay raise. Thus, when comparing the two plans, the Senate plan is less effective than the House plan when the two plans are measured in light of their positive impact on everyday Mississippians. Tax cuts would be good for Mississippians, even in small amounts. However, a tax reform proposal that does not accomplish its stated goal to give a meaningful reduction in taxes should be revised at a very minimum.
The impact of the tax plans on the state budget and economy
Granted, increases in taxpayers’ take-home income may greatly benefit Mississippi on an individual level, but some would look back to the consideration of the two plans from the state budget angle. In determining how much taxes to cut, a key consideration has been whether such tax cuts would have a negative effect on the state’s budget and fiscal responsibility.
Mississippi’s state budget is in some of the best shape it has ever been in. Some of the funds are due to an influx of federal funds, but the state also has among the highest state tax revenue collections it has ever had. Thus, while some may argue that it is not a good time for a widespread tax cut and removal of the income tax, it is unlikely that a better time will come about in the foreseeable future.
Instead of the state government simply spending the money itself, money is in the best position when it is in the hands of the private sector. According to the Mercatus Center, several studies have suggested that while private sector investment grows the economy, government spending can actually harm the economy in some cases, by pushing out the private sector in favor of government programs.
Additionally, in light of the excess revenues, it is fiscally responsible to put the money back into the hands of the people. In the wake of the economic struggles of the pandemic, along with the challenges of inflation and Bidenomics, the time has come for Mississippians to at least get meaningful tax relief from their own state.
After all, if an elected government has a balanced budget and an excess surplus, what better course of action than to return the money to the taxpayers it came from? The House plan does the best job at accomplishing this.
It's time for real tax relief in Mississippi
Mississippi needs real tax relief. While both the Senate and House plans give commendable tax cut proposals for the state's people, the House plan carries the most promise as a catalyst for true tax relief and long-term growth. Rather than merely giving Mississippians tax breaks that are well-intentioned but non-transformative, the time has come for state leaders to give the people meaningful tax relief.