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Many Republican-led states have been cutting income taxes in recent years, and now Mississippi lawmakers say they're going to do away with their state's income tax entirely. Mississippi Public Broadcasting's Will Stribling reports from Jackson that this leaves questions about how the state will fund core services.
WILL STRIBLING, BYLINE: Surrounded by lawmakers in March, Mississippi Governor Tate Reeves signed a bill into law he says fulfills a longtime goal.
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TATE REEVES: We can all stand together and say that we have accomplished income tax elimination in the state of Mississippi. Let me say that again - Mississippi will no longer tax the work, the earnings or the ambition of its people.
STRIBLING: Really, the bill just lowers the personal income tax rate from 4% to 3% by 2030. Then it could be phased out over the next decade if the state's economy grows. Lawmakers even passed the bill knowing there was a typo that allows tax cuts when economic growth is much smaller than originally intended. Opponents say income taxes are more fair than taxing things like groceries or gas taxes, which are going up. The state ranks low in spending on schools and health care, and Democratic House Minority Leader Robert Johnson said it can't afford to cut income taxes.
ROBERT JOHNSON: You won't have a hospital to go to. Doctors will have to move away 'cause they can't get paid. It's going to be a disaster. And these people are going to have a day of reckoning when it comes to how we provide services in this state.
STRIBLING: Mississippi is going further than other states, but it's far from the only one slashing tax rates. Kentucky is also working to phase out its income tax. Other states reduced it as their budgets were supercharged by federal pandemic-related spending.
KATHERINE LOUGHEAD: We saw 28 states reduce their individual income tax rates in the past four years alone. So this is really the biggest wave of state income tax reform and relief the U.S. has ever seen. It's really, really significant.
STRIBLING: That's Katherine Loughead. She's a senior analyst and research manager at the Tax Foundation, which promotes tax policies aimed at creating economic growth. Several states, like Texas and Florida, have never had an income tax, but it's been decades since the state did away with them. Proponents of income tax phaseout say they attract businesses and people to the state. Here's Republican House Speaker Jason White.
JASON WHITE: It comes from a core belief that it is better to tax someone based on the things they purchase and not tax them based on their productivity or their livelihood or their income.
STRIBLING: But some economists warn the end of federal pandemic-era spending coupled with lower income tax revenues could force lawmakers to increase other taxes in ways that discourage business growth. Steven Sheffrin is a professor of economics at Tulane University.
STEVEN SHEFFRIN: Unless you cut your spending totally, you're going to basically be relying more on property taxes and more on sales taxes. And a lot of that's not going to just come from individuals - it's going to come from business.
STRIBLING: And if states are all cutting, it could turn into a race to the bottom that wipes out any competitive edge. And Sheffrin says it can make a state less attractive.
SHEFFRIN: Ultimately, what does matter is, you know, how your education system is operating, what other incentives there are in the tax code, infrastructure, how the roads are and all those other factors, which are really important.
STRIBLING: As they focused on cutting the income tax in the spring legislative session, lawmakers failed to pass a state budget. Governor Reeves is expected to call lawmakers back in the next few weeks for a special session where they'll have to work out how much to spend on big-ticket items like schools and roads. For NPR News, I'm Will Stribling in Jackson, Mississippi.
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