Democrats provided the crucial votes Monday in the Mississippi Legislature to approve $415 million in tax cuts, with some lured by the promise of construction projects paid for with borrowed money.
The House voted 73-44 Monday to approve a House-Senate agreement on Senate Bill 2858, with the Senate voting 36-14 to send it Gov. Phil Bryant for his approval or veto hours later. Bryant has expressed support for a tax cut.
The agreement would phase out Mississippi’s $260-million-a-year corporate franchise tax, a long-held goal of manufacturers, bankers and other business groups. It would also cut $145 million in income taxes, raising the threshold for paying state income taxes to $10,000. Anyone making that much would get a $150-a-year cut. Those reductions would begin in 2018.
Finally, Mississippi would lower taxes on self-employment, cutting $10.2 million over three years beginning in 2017.
“A flatter, fairer tax policy can grow the economy of our state and make Mississippi-grown businesses more competitive in the global marketplace,” Lt. Gov. Tate Reeves, the leading proponent of the tax cut, said in a statement.
House Ways and Means Committee Chairman Jeff Smith, R-Columbus, told House members during debate that Reeves was unlikely to allow senators to approve a bill calling for the state to borrow $250 million for construction projects if the House didn’t approve the tax cut. The tax reduction and the bond bill got linked during negotiations between the chambers, with House members seeking more borrowing but shying away from tax cuts, while Reeves took the opposite position.
“If we go home without doing something for our colleges and universities, we’re being negligent, and this is something I think we need to reluctantly do,” Smith said.
Smith urged the House to “swallow hard” and approve the tax cut, saying House Speaker Philip Gunn, R-Clinton, intends to make a comprehensive study of the state’s tax structure over the summer, in part to find ways to raise money for road repairs. Smith said that because revenue won’t begin to be affected until 2018, House members will have two more sessions to realign the tax structure and potentially raise taxes to replace the lost revenue.
Democrats questioned the wisdom of approving tax cuts while revenues were declining. Lawmakers approved more than $350 million in business tax reductions during the previous four-year term, and business tax collections are already projected to fall $150 million from last year to 2017.
“This simply sets off a booby trap, a time bomb, to go off down the road,” said Sen. Hob Bryan, D-Amory.
A cohesive Democratic House minority was large enough last year to defeat a larger tax cut in the House. With swollen numbers giving the GOP a supermajority in the chamber, Democrats alone couldn’t have denied the tax cut. But the seven Democrats provided the margin needed to clear the 60 percent threshold, as seven Republicans voted no. Even in the senate, the five Democrats who voted for the tax cut and the one who didn’t vote could have defeated it if all had voted “no.”
Rep. Credell Calhoun, D-Jackson, was among the Democrats who voted for the tax cut. Calhoun said the threat of no bond bill and no projects for his district led them to vote for the tax cut
Calhoun said the two-year delay in the cuts made his vote easier.
“In two years, things could be a little different,” he said.
Like most other proposed income tax cuts, benefits would flow most to high-earning households. Projections from the liberal-leaning Institute on Taxation and Economic Policy show the lowest-earning 20 percent of taxpayers, making $16,000 or less, would save an average of $14 a year. Those earning in the top 95 percent to 99 percent of households, with incomes from $156,000 to $324,000, would collect an average of $271 a year. That’s in part because high-income households are more likely to have two earners.