Mississippi income tax: Economic, business leaders hesitant on overhaul

Feb. 25—JACKSON — Michael Callahan went to bed early Monday night — so early that the CEO of Mississippi's electrical cooperatives trade organization didn't realize an overhaul of the state's tax system was speeding through the House of Representatives until the next morning.

By Tuesday afternoon, House Bill 1439 had cleared the floor of the House, less than 24 hours after being filed and approved by the Ways and Means Committee with little notice.

»WHAT YOU NEED TO KNOW: Here are the details of the income tax elimination bill

On Wednesday, Callahan was among the ranks of business interests, trade groups, policy advocates and Capitol watchers cramming to read a 317-page bill that could eliminate the state's income tax in 10 years while upping almost all sales tax rates.

"We're still trying to figure it out," Callahan said, adding later, "I wish we'd had more time to look at the bill. If we'd had a few more days to look at it, we could have run our numbers and been in a better place."

Key commerce interests were also playing catch-up on Wednesday, including the historically influential Mississippi Economic Council.

"We've only had a short period of time to review this," said Scott Waller, MEC president and CEO. "We're in the process of reviewing what's in this, trying to fully understand the impact this will have on businesses."

But some things are already clear.

"It will raise costs," Callahan said.

Other than a sales tax on groceries — which would be slashed — the sales tax on other goods would rise by 2.5%.

That means the general sales tax rate would increase from 7% to 9.5%. The sales tax on manufacturing machinery would rise from 1.5% to 4%, impacting a range of industries, including the EPAs.

Even so, many are stepping carefully and weighing their words.

"I think at this point, we don't know," Callahan said. "We've been told it's in the best interest of the state, so how can you argue with what's in the best interest of the state?"

But would rising costs on poles and wire force rural electrical power providers to raise rates?

"Only time will tell," Callahan said.

Farmers are also showing some anxiety.

"We're still digging into the bill. It was kind of a surprise," said Mike McCormick, president of the Mississippi Farm Bureau. "But we're very concerned with the impact on farmers."

The farming equipment sales tax would rise from 1.5% to 4%.

The biggest problem, in McCormick's eyes, is that farmers don't have anywhere they can pass those additional costs.

"We don't get the chance to set the price on anything," McCormick said. "We are price takers, not price setters."

John McKay, president and CEO of the Mississippi Manufacturers Association, was also direct. He fears Mississippi manufacturers will lose a competitive edge against states that already have lower taxes or no taxes on manufacturing materials.

"We do have concerns about the legislation, in particular the sales tax increase for machinery and replacement parts for manufacturing," McKay said. "We compete globally and regionally, so having our products be competitive in that marketplace is critical."

Mississippi's Republican leadership has been a reliable ally to business interests since coming to dominate the state's political power centers. Whether business interests now seek to exert influence and rein in this bill may depend on how seriously they take the possibility of its passage in the Senate.

Gov. Tate Reeves, a first-term Republican, said earlier this week that he wants to cut taxes for everyone, not cutting taxes for some while raising them for others. House leadership has insisted their bill amounts to a net tax decrease.

Some economic figures tilt are tilting positive on the tax legislation that came out of the House, at least in broad strokes.

In Northeast Mississippi, David Rumbarger, an economic developer who heads the Community Development Foundation, said in principle he supports the intent of the legislation.

"I'm for anything that makes us competitive," he said.

Citing his own experience pitching the state to industrial and commercial interests, Rumbarber said a skilled workforce is of greater value than buildings or sites. If an income tax cut will stem the brain drain of college graduates, even just a little, he believes the impact will be positive.

However, he did call for further discussion of the concerns cited by other economic and business leaders.

And that's the same place where many of those leaders landed themselves.

Noting that manufacturers have been "out of the loop" as this bill has been drafted, McKay said he feels "there's plenty of opportunity to continue the discussion" as the bill awaits additional legislative action.

Waller also looked toward future deliberation.

"First and foremost, we really do appreciate that legislative leadership is working to try to reduce the tax burden on our citizens," he said. "The key to all of this we have to make sure we have a tax structure that promotes investment and job creation."