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Senate unveils income tax cut plan, signaling battle among Capitol leaders

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The state Senate on Tuesday unveiled its proposal to cut the state income tax, not eliminate it altogether as the House and governor propose.

It would also reduce the tax on groceries, provide a tax rebate up to $1,000 for 2022 and reduce the cost of car tags.

It also sets up a potential tax cut battle at the Capitol — with Speaker Philip Gunn and Gov. Tate Reeves pushing for elimination of the state income tax over time, although they have disagreed on particulars.

“This plan is simple, straightforward and sustainable — all the things you want addressed,” said Lt. Gov. Delbert Hosemann. “This addresses the inflation and cost of living increases hitting you at the grocery store and when you fill your gas tank, and it addresses teacher raises, infrastructure and health care needs we have as well.”

Gunn on Tuesday said he had not seen many details of the Senate plan, but said his support for eliminating, not just cutting, the income tax is firm. Gunn, the third-term speaker, has called his plan to eliminate the income tax the most important legislation of his political career.

“We are not interested in a token tax reduction that returns only a portion to our citizens without eliminating it,” Gunn said. “The governor has made similar statements. We will be coming forward soon with analysis showing the difference in the two plans. We still believe our plan is real, conservative tax relief.”

READ MORE: Speaker Gunn’s plan to eliminate income tax, reduce food tax

Unlike the House plan, the Senate income tax cuts would not be offset by an increase in sales or other taxes. Also unlike the House plan, the Senate plan would not require revenue growth “triggers” in order for the cuts to proceed.

The Senate’s $446 million tax cut proposal would:

  • Phase out the 4% state income tax bracket over four years. This, coupled with elimination of the 3% tax bracket effective last year, would mean people would pay no state income tax on their first $26,600 of income. This would cost $185 million a year at the end of the four years of cuts.
  • Reduce the state grocery tax from 7% to 5%, starting in July. This would cost about $118 million a year based on current revenue.
  • Provide up to a 5% income tax rebate in 2022 for those who paid taxes. The rebates would range from $100 to $1,000 and would probably be paid late this year, around November, Senate leaders said. This would be a one-time cost of about $130 million.
  • Eliminate the state fee on car tags going into the general fund. This would be a small reduction, as most of the cost of a car tag in Mississippi is county level taxes and other fees, which would not be eliminated. This would cost about $13 million a year.

Senate Finance Chairman Josh Harkins, R-Flowood, announced the plan to the Senate Finance Committee on Tuesday and provided a white page with broad details. He said the full bill will be out soon. Harkins and other Senate leaders have worked on a tax cut plan since last year, after the Senate killed Gunn’s first attempt at an income tax elimination plan.

READ MORE: Lawmakers hear from experts as they ponder eliminating income taxes

The House has already passed its income tax elimination plan on to the Senate. It includes cuts to the grocery tax and a 1.5-cents-on-the-dollar increase in the sales tax, which would bring the state sales tax to 8.5%. The plan would phase out the state income tax over a decade or so, depending on revenue growth.

The House plan has faced some criticism and skepticism from business and other leaders since Gunn introduced it last year, but he and other House leaders say they’ve tweaked it to address concerns. The sales tax increase was reduced from the original version, and other tax increases in the plan were eliminated.

“The House plan totally eliminates the income tax in a responsible way,” Gunn said. “It is our desire to put more money back into the pockets of our citizens. We have an opportunity right now like we’ve never had before and probably never will again to do this.”

READ MORE: Business leaders oppose Gunn’s income tax elimination-sales tax increase

Harkins told Finance Committee members the Senate tax plan is “aggressive,” but not foolhardy. He said the current state budget is flush with pandemic stimulus dollars that he called “cocaine from the federal government” that will dry up. He also noted lawmakers this session have already pledged hundreds of millions of dollars a year in new spending on things such as a large teacher pay raise.

“Mississippi has had a record year in terms of revenue, so it was imperative to me we develop a durable tax relief plan which returns taxpayer money to taxpayers without raising any rates,” Harkins said. “The most important thing we can do as conservatives is get this right — and this plan allows for a substantial cut while still balancing the budget.”

Reeves spokeswoman Bailey Martin in a statement on Tuesday said: “Governor Reeves is grateful for the Senate’s interest in cutting taxes on Mississippians. He looks forward to reviewing their plan and continues to believe the legislature should act boldly this session to transform our tax system by eliminating the income tax.”  

While Reeves in the past criticized Gunn’s plan as a “tax swap” because it increases sales taxes to offset elimination of the income tax, more recently he has praised Gunn and the House leadership for their efforts.

Fellow Republican Hosemann noted the Senate income tax cut plan is based on tax cuts then-Lt. Gov. Reeves and Gunn championed in 2016, which phased out the state’s 3% income tax bracket and continues to phase out the corporate franchise tax.

Hosemann said he and the Senate leadership plan to “enthusiastically” support their plan and he and Harkins both declined comment or analysis of the House plan.

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