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Ridgeland, MS (Mississippi Today)
A group of state senators on Monday grappled with how much to slash state taxes or if they should cut them at all, portending a major policy debate at the Capitol for next year's legislative session.
The Senate Fiscal Policy Study Group solicited testimony from the state government's leading experts on budget, economic and tax policies to prepare for an almost certain intense debate in January over how much they should trim state taxes while balancing the need to fund government services.
Senate Finance Chairman Josh Harkins, a Republican from Flowood whose committee has jurisdiction over tax policy, told Mississippi Today that he wanted senators to have basic facts in front of them before they help decide next year if Mississippi should cut taxes.
"We're getting a tax cut the next two years whether we do anything or not," Harkins said. "I just want to make sure we have all the facts in front of people to understand we have a clear picture of how much revenue we're bringing in."
Mississippi is already phasing in a major tax cut. After a raucous debate in 2022, lawmakers agreed to phase in an income tax cut. In two years it will leave Mississippi with a flat 4% tax on income over $10,000, one of the lowest rates in the nation.
However, the top two legislative leaders, Lt. Gov. Delbert Hosemann who oversees the Senate and House Speaker Jason White, have both recently said they want legislators to consider new tax cut policies.
Hosemann, the Republican leader of the Senate, has publicly said he would like to see the state's grocery tax, the highest of its kind in the nation, reduced, though he hasn't specified how much of a reduction or how long it would take for the cut to be implemented.
White, a Republican from West, said last week that he would like to see the state's 4% income tax phased out and have the state's 7% grocery tax cut in half over time.
"We are hoping to construct a tax system that, yes, prioritizes certain needs in our state, but it also protects and rewards taxpayers," White said last week.
But it's difficult to collect accurate data on the state's grocery tax, and state lawmakers must grapple with a laundry list of spending needs and obligations based on testimony from state agency leaders on Monday.
Mississippi currently has a 7% sales tax, which is applied to groceries. The state collects the tax but remits 18.5% back to cities. For many municipalities, the sales tax is a significant source of revenue.
If state lawmakers want to reduce the grocery tax without impacting cities, they could pass a new law to change the diversion amounts or appropriate enough money to make the municipalities whole.
State Revenue Commissioner Chris Graham said the Mississippi Department of Revenue, the agency in charge of collecting state taxes, does not have a mechanism in place for accurately capturing how much money cities collect in grocery taxes. This is because the tax on groceries is the same as non-grocery items.
However, Graham estimates that the state collects roughly $540 million in taxes from grocery items.
The other problem lawmakers would have in implementing significant tax cuts is a growing list of spending needs in Mississippi, a state with abject poverty, water and sewer and other infrastructure woes and some of the worst health metrics in the nation.
Representatives from the Legislative Budget Office, the group that advises lawmakers on tax and spending policy, told senators that lawmakers will also be faced with rising costs in the public employee retirement system, the Medicaid budget, public education, state employee health insurance, and state infrastructure projects.
READ MORE: As lawmakers look to cut taxes, Mississippi mayors and county leaders outline infrastructure needs
State agencies, including the employee retirement system, also requested $751 million more for the coming budget year.
"That's the billion dollar question, I guess," Senate Appropriations Chairman Briggs Hopson, a Republican from Vicksburg, said. "How we're able to fund basic government services?"
Harkins and Hopson said the committee would likely meet again before the Legislature convenes for its 2025 session on January 7.
A House committee on tax cuts has also been holding hearings, and White in September held a summit on tax policy.
This story is provided as a service of the Institute for Nonprofit News' On the Ground news wire. The Institute for Nonprofit News (INN) is a network of more than 475 independent, nonprofit newsrooms serving communities throughout the US, Canada, and globally. On the Ground is a service of INN, which aggregates the best of its members' elections and political content, and provides it free for republication. Read more about INN here: https://inn.org/.
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