Vice President for State Fiscal Policy
It’s hard to imagine a more harmful fiscal policy idea than Mississippi Governor Tate Reeves’ call to eliminate the state’s income tax, the state’s second largest revenue source for schools, health care, and other essential public services.
With no income tax, the state’s policymakers would face two unattractive options: sharply cut funding for schools and other services or raise other revenue significantly. Massive funding cuts would undermine Mississippi’s long-term economy because laying off teachers and letting roads deteriorate is hardly a recipe for economic health. The alternative, turning to other revenue sources, would significantly shift tax burdens for schools, roads, and other services, further concentrating power and wealth among a privileged few.
Unlike Mississippi’s other major forms of state tax, its income tax has graduated rates. As such, those with the highest incomes — and greatest ability to pay — pay the most as a share of their income. Scrapping that tax and shifting more to sales taxes, the other major form of state revenue, would be a boon to the state’s corporate executives, lawyers, and other wealthy residents, but a major hardship for middle- and low-income families, which would bear more of the cost of paying for schools and other services.
Indeed, Mississippi enacted the nation’s first modern retail sales tax, during Jim Crow, in part to reduce property taxes and shift state taxes from (mostly white) property owners to consumers with little or no property and little else to tax (many of whom were Black). “There are today in Mississippi thousands of people who pay no taxes, but who enjoy all the rights and privileges of citizenship,” then-Governor Mike Conner told the all-white legislature. “These people will be glad of an opportunity to share in the responsibility of maintaining the government of the state in which they live.”
Like Conner’s proposal of the 1930s, Governor Reeves’ income tax repeal measure, which he proposed as part of his budget, would shift to sales taxes and other revenue-raisers that fall hardest on low-income families and people of color. Of course, the state could rely solely on massive funding cuts for schools and other services but that too would be costly for the (disproportionately Black) low-income families that depend on them. Local governments might limit the impact by raising property taxes, but that has the least effects on wealthy homeowners, who can most afford a rate increase. Less well-off areas would have to either hike property tax rates very sharply or slash public services, further widening Mississippi’s longstanding racial and class inequities.
Governor Reeves’ rationale for the move is faulty: that people and businesses from other states would flock to Mississippi to save on taxes, driving an economic boom. In reality, people for the most part live where their family lives or where they can get a job or go to school; they rarely move for taxes. The idea that massive numbers of people in other states would quit their jobs and uproot their families so they can avoid a particular type of tax in Mississippi is ludicrous.
In his budget, the governor claims, “States that have taken this bold step have been rewarded with a windfall of economic growth.” Actually, the last state to try something similar was Kansas in 2012, when Governor Sam Brownback sharply cut income taxes as part of a plan to fully eliminate them over time. That plan ended in a shambles five years later after the economic gains did not materialize and the Republican legislature rebelled, overriding the governor’s veto to largely restore the income tax to where it had been. No other state has been foolish enough to try the same thing except for Alaska, but only after the state opened a pipeline that ensured massive oil revenues for decades to come.
States that sharply cut income taxes have reaped sharply lower state revenues, as common sense would predict, and they have consistently failed to produce an economic boom. And states without broad-based income taxes, including Florida and Tennessee, have higher sales and property taxes and economies that are nothing special. Nearly 80 percent of the country’s economic output last year came from states with income taxes.
Mississippi would do better by investing in the people and businesses already in the state. That’s where the vast majority of jobs come from in every state anyway. Particularly during a pandemic that’s hit low-income people and people of color the hardest, states need antiracist, forward-looking policies that protect families facing the greatest challenges and address the longstanding racial and class inequities that weaken our shared future.