Newborn Mississippians have the unfortunate distinction of a shorter life expectancy than newborns of any other state. In fact, as New York Times columnist Nick Kristof recently noted, a newborn boy in Mississippi enjoys a shorter life expectancy than a newborn boy in Bangladesh.
But that doesn’t seem to be the focus of Mississippi Governor Tate Reeves (R) these days. Reeves is paying more attention to the tax rates of rich Mississippians. He recently announced his goal of eliminating the state’s income tax entirely. This comes on the heels of the state legislature reducing the state’s income tax earlier this year, with a plan to eliminate the 4% bracket by 2023 and reduce the 5% bracket to 4% by 2026. Projected revenue surpluses for 2022 and 2023 paved the way for passage of the plan despite its controversial $525 million price tag.
Despite this significant tax cut, Governor Reeves is not done. After the reduction passed, he tweeted that although the “political environment in the MS Senate” is not right for a full elimination, he will continue to push for “transformative changes” to the state’s tax policy. If the Governor gets his way, Mississippi will likely see a huge transformation in the coming years, just not in the way he expects. Like Kansas before it, Mississippi’s tax cut experiment is likely to leave the state and its residents significantly worse off.
Although the income tax comprises around one-third of Mississippi’s yearly operating budget, some legislators, riding the high of strong economic growth, share Reeves’ goal of eliminating it. Governor Reeves believes doing so “will eliminate competition barriers relative to other states and will encourage more and more people to move into the state which will lead to more and more growth.” Undaunted by the elimination of around $1.6 billion in income tax revenue, Governor Reeves is pushing ahead with his plan to “make Mississippi more competitive not only for capital investment, but for people.”
He’s far from the first state executive to think along these lines. Lawmakers around the country are buying into the approach of cutting income tax rates to encourage more people and businesses to move to their states. Mississippi joined nine other states in 2022 who cut their income tax rates, after nine cut rates in 2021.
The tax cutting trend is expected to continue into fiscal year 2023, with potentially disastrous consequences for state budgets. The Tax Policy Center projects that after massive growth during the COVID-19 pandemic, state tax revenues are likely to cool off, or even decline, in 2023. States like Mississippi that have deprived themselves of revenue from a progressive income tax could face budget struggles.
Mississippi’s legislators and its wealthiest residents and entrepreneurs are not likely to suffer much, but its poorest residents, who depend on state-funded social services, almost certainly will.
This trend raises questions about Governor Reeves’ logic: if every state is cutting income tax rates to attract wealthy people and the businesses they run, what will make Mississippi so special? The more states that utilize this tax cutting approach, the less effective it will be for Mississippi and others. This is a classic “race to the bottom,” in which state governments seek to lure rich residents of other states by lowering state tax levies. When one state lowers its income tax rates for those at the top in hopes of attracting rich residents of another state, and that other state responds by lowering its rates as well, the net result is that neither state has accomplished anything other than reducing its available revenue.
Historically, when a state has cut income taxes, the majority of savings typically go to the top 1% of its residents. Income tax cuts do not lead to more equality and tax fairness. Indeed, the opposite is true. According to ITEP, only 37% of the tax cut will go to Mississippians making less than $90,000 a year, with an average tax cut of $14 per taxpayer. The remaining two-thirds will go to the top 20% of Mississippians, with an average tax cut of $6,700. If Mississippi eliminated its income tax entirely, ITEP estimates, $1.2 billion (75%) of the cuts would benefit the top 20 percent of the state’s income earners.
It’s clear that the rich disproportionately benefit from cuts like this. But the problem with these proposed cuts isn’t just that the rich benefit the most – it’s that reduced state services and other regressive taxes make poorer communities end up paying the cost of making these rich people richer. In Mississippi, it seems, they’re paying with their lives, or at least the last years of them.
Kansans learned that the hard way after its legislature enacted steep income tax cuts in 2012 and 2013, hoping to stimulate growth in economic output and job creation. Instead, Kansas’ private sector job growth from 2012-2017 was lower than all of its neighbors and revenues plunged, resulting in cuts to funding for roads, bridges, and education. While necessary spending was constricted, Kansas’ economy, infrastructure quality, and education services continued to suffer until 2017, when the legislature ended the disastrous experiment and reversed the cuts. Are Mississippians about to learn the same lesson?
Even with a 5% top rate in place over the last ten years, Mississippi has failed to adequately fund its infrastructure, social services, and communities. The recent cuts will only make things worse. Take Jackson, for example, where interruptions in drinking water have become the norm. Jackson’s water infrastructure has been failing for several years now – in 2021, a winter storm shut down the city’s largest water treatment plant for an entire month. Even when the system is up and running, Jacksonians have to deal with constant boil-water notices and high monthly bills for unsafe drinking water. In August, severe flooding shut down the plant and Jackson’s 150,000 residents went without running water for seven whole days, with a boil-water advisory still in place three months later. That’s not exactly a recipe for improving Mississippi’s worst-in-the-nation life expectancy.
A resident of Jackson’s predominantly black, low-income south side said that he hasn’t gone more than a week in the last two years without some form of water disruption. Experts say that this crisis is the result of a lack of funding for key infrastructure projects. Over the past year, Democrats in Jackson have been pushing for more funding from the Republican-led state legislature, but to no avail. If an entirely preventable disaster like this occurred when the state enjoyed a revenue surplus, what can poor Mississippians expect if revenues shrink as projected in 2023? What happened in Jackson could happen all over Mississippi, and anywhere else in the country where state legislators have slashed income tax rates.
It’s also worth noting that when state budgets tighten after cutting income tax rates, states usually don’t reverse the tax cuts. Instead, they depend on regressive sales and “sin” taxes to make up the gap. When growth in Kansas slowed, to avoid further spending cuts, the legislature raised the sales tax, which is regressive because lower-income households spend a greater share of their income than higher-income households do. Kansas also raised taxes on tobacco, fuel, and other consumer goods, which are also regressive for the same reason.
As state tax revenues start to dry up in 2023, the ripple effect of these practices could be especially harsh in poorer communities. In the face of a budget crisis, states often cut revenue sharing with cities and towns, which may then turn to fines and penalties and engage in “policing for profit,” causing further damage to poorer communities. Ferguson, Missouri became one of the first states to allow private companies to purchase the probation systems of local governments in the 1980s. In 2013, court fines and fees represented Ferguson’s second-largest source of income, generating almost $2.5 million in revenue. Ferguson collected significantly more revenue from its courts than surrounding towns in Missouri and issued more than twice the amount of arrest warrants per capita than any other town in Missouri. Those conditions led to increasing hostility toward the town’s court system, which ignited into widespread unrest and protests when an unarmed Black teenager named Michael Brown was killed by the Ferguson police in 2014.
This isn’t just a potential issue down the line, it’s causing problems right now. State tax systems are already absurdly regressive. In 2018, ITEP reported, those in the bottom 20 percent paid an average of 11.4 percent of their income in state and local taxes, while those in the top one percent paid an average of just 7.4 percent. Many states, including Washington, Texas, Florida, and Tennessee, are far more regressive than the average state, collecting no income tax and instead relying heavily on regressive sales and excise taxes. Other states, like Pennsylvania, Illinois, and soon-to-be Mississippi, use regressive flat income tax structures, which tax everyone at the same rate and fail to collect more from those who can pay more.
The current tax cutting mania will make these regressive systems worse. This trend is unsustainable, but states are unlikely to reverse it on their own. Ultimately, unless compensating reforms are made at the federal level the immiseration we witnessed in Jackson, Mississippi will become the norm for poor Americans everywhere.