Michel open to eliminating Mississippi income tax

State Sen. J. Walter Michel says he is in favor of a tax reduction but has not ruled out an income tax elimination in the state.

“There are two ways to get to the tax elimination,” said Michel, who represents Madison County and parts of Hinds. “One would be gradual over time starting with a reduced amount instead of just lopping it off, but a gradual reduction. I would be more inclined to look at a gradual reduction on the income tax.”

House Speaker Philip Gunn is leading an effort to eliminate the state’s income tax after a measure passed his chamber last session but failed to make it out of a Senate committee.

A bipartisan group of state lawmakers met at the Capitol last week to hold hearings on the possibility of eliminating the state income tax. 

Michel said one of the reasons the House proposal did not make it out of the Senate committee last session was because the bill raised sales taxes and that senators were not sure Gov. Tate Reeves would even sign the bill into law since he is on record as being for a straight income tax elimination and against a tax swap.

Gunn, a Republican representing Hinds and Madison counties, is chairing the committee and said he believes the House measure is a sound plan but he supports the Senate’s decision to study the issue before the next session.

“That’s why the Senate and House held an in-depth two-day joint hearing to hear from economists and tax policy experts,” Gunn said. “The purpose was to get a clear-eyed look at the data and expert analysis and take their advice seriously.”

Lawmakers are in the study phase and no action can be taken on eliminating the state's income tax until the full Legislature is in session, which barring any special sessions, would be January.

Gov. Tate Reeves has pushed eliminating the state income tax.

“I’m also very glad that the Lt. Governor, Speaker, and I all agree that the income tax should be eliminated, and that doing so best positions Mississippi for long-term success,” Reeves said. “I hope that once the hearings are over, the Legislature will realize that eliminating Mississippi’s income tax is needed and reducing the tax burden on Mississippians across the board is the best way to ensure our state’s economic prosperity.”

Reeves said he does not support eliminating the state’s income tax in exchange for another form of tax.

“I hope that once the hearings are over, the Legislature will realize that the best way forward is to not swap the income tax for increases in sales taxes, agriculture taxes and other taxes,” Reeves said. “I’m opposed to robbing Peter to pay Paul. In fact, I want Peter and Paul to have more money in their pocket. I’ve been in contact with small businesses throughout Mississippi — including in the manufacturing and agricultural industries — outside think-tanks, and other stakeholders. Based on my conversations with them, it’s clear — the consensus is that eliminating, not swapping the tax burden, is the way to go.”

Reeves said he believes Mississippi is in a good financial position now to eliminate the state’s income tax. 

“Mississippi is in the best fiscal and financial shape in the state’s history, thanks in large part to Mississippians’ willingness to go back to work despite a global pandemic,” Reeves said. “Thanks to them, Mississippi ended the year $1 billion over revenue estimates.”

Reeves said that when he was the state’s Lt. Governor he proposed the largest tax cut in the state’s history.

“We were able to eliminate the 3% tax bracket without increasing taxes in other areas,” Reeves said. “We did it before, and it is my firm belief that we can do it again.

Michel said the House bill is just a blueprint at this point. 

“We intend to start with that and work on it, but there are some things that are important to me that I want to look into,” Michel said. “One issue is what the tax would do to our restaurants in Madison County. It would take the sales tax when you go out to eat at a restaurant from 7% to 9-and-a-half percent.”

Michel said many municipalities already have an additional add-on tax on top of that.

“For example, Ridgeland has another 1% add-on tax,” he said. “Jackson has a 2% add-on tax. Ridgeland right now if that bill became law with Ridgeland’s 1% add on you’d be paying 9-and-a-half percent tax at a restaurant. The city of Ridgeland has come to us legislators in the last couple of years and they want to raise that tax another 1% for the Visit Ridgeland. If you are looking at the totality of that it could be as much as 10-and-a-half percent tax on eating out at a restaurant in Ridgeland.”

Michel said he believes restaurants have already been hurt by the COVID-19 pandemic.

“I would be in favor of some relaxation of the sales tax on the restaurants,” Michel said adding the current plan amounts to a tax swap. “The tax plan reduces the income tax but on the other hand, it raises sales tax on just about everything except groceries. It does reduce the tax on groceries.”

However, Michel said, while grocery taxes would be reduced in the current plan it also raises taxes on some of the other items you might buy at a grocery store.

“At a grocery store, not every item you put in your cart is a grocery item,” Michel said, adding that right now everything at a grocery store is taxed at 7%. “If this bill were to become law, we would have to differentiate between what items they consider groceries and other things that would go up.”

Michel said bread, milk and eggs would be reduced under the current measure but other items would go from 7% to 9-and-a-half percent. 

“That would be everything like soap, detergent, paper towels, laundry detergent, dog food, beer, soft drinks, chips,” Michel said. “Any kind of prepared food you would buy at the deli would go up. It is important to realize that not everything at the grocery store would be reduced.”

Michel said he also is concerned about how the initial measure would affect retirees who now have no income tax on IRAs, 401Ks, pensions or retirement incomes.

“We are a very retiree-friendly state and what this legislation would do since the retirees are already not paying income tax on that income anyway, it would give them a tax increase because it would raise the cost of just about everything they buy except those few grocery items that would qualify to be at a reduced rate at the grocery store,” Michel said. “Just about everything else they would bye at a Walmart as an example would go up to 9-and-a-half percent.”

Michel said he thinks an income tax reduction is good.

“I want to look at it with an open mind and maybe look at some reductions of some of these large sales tax increases that were in the House bill,” Michel said.

Democratic Sen. Hob Bryan of Amory told the Associated Press last week that he opposes eliminating the income tax because of the state's infrastructure problems, which include poor roads and bridges, water and sewer problems and lack of internet access.

“Do you know a single human being on the face of the earth that would move to Mississippi if only we didn't have a state income tax?” the AP reported Bryan saying. “It's laughable on its face.”

During the joint Tax Study Committee hearings held Aug. 25 and 26, tax economists from the University of Mississippi and other tax reform proponents, including Grover Norquist, founder and president of Americans for Tax Reform, and Russ Latino, president of Empower Mississippi, spoke.

Norquist told the group of lawmakers that eliminating the state income tax is a good incentive to bring people and businesses to the state.

“There is a movement now that is moving state by state,” Norquist told members of the joint Tax Study Commission on Aug. 26. “Utah is getting in on the conversation about moving down toward zero. Even some of the blue states are talking about inching their extremely high-income taxes down and certainly not increasing them and they are explicitly saying because people will leave.”

Norquist presented data that he said showed states with lower or no income taxes have more people moving into them while states with higher income tax rates have people moving away from them.

“Pretty soon everyone is going to be a no-tax state, so the question for Mississippi is are you going to be an early adopter or are you going to be catching up?” Norquist said. “California and New York are going to be catching up.”

Norquist said eliminating state income tax tells people you support their success.

“This is not a state consumed with envy," Norquist said of the message no income tax sends. "This is not a state that will celebrate your success when you come here. We are glad you are here. We are glad you’re successful. We won’t decide, ‘You’ve made more money than the guy down the street so I think we will take something from you.' People tend to move away from neighborhoods where that exists in history. The early adaptors will have the advantage over the people who decide to start this five, six and seven years from now.”

The Associated Press reports that Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not charge any state income tax.

"Individual income taxes made up 34% of Mississippi's state tax revenue during the state budget year that ended June 30, according to the state Department of Revenue," the AP reports. "That was about $2.2 billion from individual income taxes in the nearly $6.6 billion the state collected for its general fund."