Bobby Harrison: MS revenue is anemic even before new tax cut takes effect

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7 hours ago

It should not be a surprise that what was touted as the largest tax cut in state history might be resulting in less revenue to fund Mississippi's vital services such as education, law enforcement and health care.
Perhaps a bit of clarification is needed. In recent years, three separate tax cuts have been touted by leaders as 'the largest tax cut in state history': a $416 million tax cut in 2016 and a $525 million tax cut in 2022. But neither is no longer the state's largest tax cut. That was passed earlier this year during the 2025 legislative session. The 2025 tax cut has not yet gone into effect.
So, in other words, three times in less than a decade, legislators have passed 'the largest tax cut in state history.'
Mississippi's current anemic revenue collections can be attributed to one of three things: an economic slowdown, those major tax cuts, or a combination of the two.
The economic slowdown seems logical. After all, billions of federal dollars flowing into the state as part of COVID-19 pandemic relief are drying up.
Then there is the issue of the tax cuts.
In the 2016 session, the Legislature approved a tax cut for corporations and on personal income totaling $416 million in 2016 dollars. The portion of that tax cut currently being phased out is for corporations.
The 2022 tax cut, though, was all on personal income.
Based on the May 2025 revenue report released by the staff of the Legislative Budget Committee, corporate taxes for the current fiscal year are down a staggering $237.5 million or 29% with one month left in the fiscal year. No doubt, there are other factors contributing to such a large decrease, but it is safe to assume the reduction in the corporate tax passed in 2016 is a contributing factor.
Despite the income tax cut also being phased in, income tax collections are up slightly this year: $34 million or 1.7%. But do not get too excited. Over the prior two years, income tax collections dropped by $253 million.
In fiscal year 2023, the income tax accounted for 35% of general fund revenue compared to 28% for the last fiscal year.
The goal of legislative leaders and of Gov. Tate Reeves is to eliminate the income tax, and that most likely will occur by 2040 under the massive tax cut passed earlier this year.
Meanwhile, buoyed by the drop in the corporate tax, it is likely that the state will end the fiscal year on June 30 collecting less revenue than it did the previous year for only the sixth time since 1970. Revenue collections normally go up just as in most years there is inflation instead of deflation. Inflation drives higher tax collections.
Overall, through 11 months of the fiscal year, revenue collections are down $78.7 million or 1.1%. There is a chance that decrease could be offset in the month of June, but it is not likely.
Even if it is offset, it cannot be disputed that revenue is slowing. The last fiscal year and this fiscal year, the collections have been bolstered by interest earnings on the state's deposits. For the current fiscal year, the state is collecting $20 million or 15.8% more in interest earnings than it did the previous year. And that is saying something since in the previous year the state collected $68.7 million or 84.4% more than it did the year before that.
Proponents have argued that the tax cuts would spur the economy and result in higher revenue collections in other areas such as on the sales tax. But there is not clear evidence of that occurring.
Despite what seems like many flashing warning signs, lawmakers who supported the massive 2025 tax cut would tell you there is nothing to see here, no need to be concerned.
Lawmakers and Reeves like to point out that the state has more than $1 billion in reserves. They cite those funds and say, of course, we have the money to eliminate more than one-third of the state revenue stream.
But they have consistently discounted the billions in federal funds that have poured into the state because of the pandemic. Those funds, which are no longer available, helped build that surplus they dwell on.
Because of that surplus, the state in the short term can absorb any lost revenue from the tax cuts. And, incidentally, Reeves can go on national television and brag about 'eliminating' the income tax.
But the question is what will be the impact of the tax cuts in 10 years when Reeves and most of the legislators responsible for the tax cut have retired from public services and are drawing their state retirement benefits?
Will they still be bragging about passing the state's largest tax cuts three times?
This column was produced by Mississippi Today, a nonprofit news organization that covers state government, public policy, politics and culture. Bobby Harrison is the editor of Mississippi Today Ideas.