Gunn Takes Tax Cut Spotlight

For the past several years Gov. Phil Bryant has pushed hard for the Legislature to adopt a rational budget process called “performance-based budgeting.”

No doubt his realistic approach to budgeting – budgeting includes both revenues and expenses – led the Governor to put forward his reasonable request for a tax cut. He proposed an overall budget that left room to create a state earned income tax credit for working families. The program would help out families earning less than $52,000 a year at a cost to budget revenues of $79 million per year.

“I am encouraged that the Legislature has expressed serious interest in moving toward a more accountable budget system, and I look forward to working closely with House and Senate leaders to develop a plan that is right for Mississippi taxpayers,” said Bryant.

Well, so much for that.

Last week the Mississippi House, spurred on by Speaker Philip Gunn, voted 83 to 32 to whack $1.7 billion a year from future budgets by eliminating state personal income taxes. Upon full implementation that would reduce general fund revenues by 32%.

“I am so proud of the House members who stepped up to support such a transformative income tax cut proposal,” said Gunn.

So, we’ve moved from accountable budgeting of revenues and expenses to transformative tax cuts affecting revenues before any accountable budgeting affecting spending takes place. Welcome to the legislative world of “accountability.”

As you might expect in a world of smoke and mirrors, the House tax cut isn’t quite what the headlines proclaimed.

First, it’s not immediate. It would be phased in over 14 years starting in fiscal year 2017.

Second, the start-up costs through 2021 are relatively small, e.g. a $22 million revenue hit in the first year would provide a modest $50 benefit to taxpayers. The tax plan starts by eliminating the 3% tax bracket on the first $5,000 of income. In 2019 it moves to the 4% bracket on the second $5,000 of income.

Third, meaningful benefits to taxpayers and giant hits to tax revenue would not start until 2022 when elimination of the 5% tax bracket on all income over $10,000 would begin.

If hoped-for “accountable budget” spending cuts or growth in other revenues haven’t wondrously appeared by then, to avoid bankruptcy a future legislature could delay, reduce, or eliminate the bigger tax cuts.

Meanwhile, Gunn and other House members can bask in the spotlight for having “eliminated” the personal income tax.

On a side note, Gunn’s surprising $1.7 billion move stole the tax cut spotlight from both Bryant and Lt. Gov. Tate Reeves. Reeves’ more modest and business-focused $382 million tax cut plan passed the Mississippi Senate last week 38 to 9.

There’s a lot still to play out, but in this one move Gunn became a top dog in Mississippi politics.

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