Multiple states, ranging from true blue California to deep red South Carolina, are using their sizable growth in revenue collections to return money directly to the taxpayers this year.
Like most other states, Mississippi is experiencing sizable, even unprecedented revenue growth. But the Mississippi Legislature and Gov. Tate Reeves opted to not return any of that revenue growth to the citizens this year.
California is returning up to $1,050 on a sliding scale with high wage earners receiving less or nothing at all based on their income levels. But under the California program, a married couple earning $150,000 or less with at least one dependent will receive the full $1,050. California is also using the surplus funds to provide rental assistance. South Carolina is providing up to $800 and Maine is providing up to $1,700 for couples earning less than $200,000.
In total 14 states have doled out some type of stimulus or rebate, and many others are pondering such a move. Many states are saying they are providing the funds to help with the high price of gasoline.
Mississippi Gov. Tate Reeves recently touted on social media that effective July 1 the largest tax cut in Mississippi history would go into effect. Technically it did. The last line of House Bill 531, known as the Mississippi Tax Freedom Act and authored by Speaker Philip Gunn, says the legislation goes into effect July 1, 2022.
But in actuality, the text of the bill reveals that Mississippi taxpayers do not reap any financial benefits from the legislation until 2023 — nothing for the current calendar year.
Starting Jan. 1, 2023, the 4% tax on the first $5,000 of taxable income will be eliminated. That means starting in January, Mississippi workers should receive a little extra in their paychecks, or alternatively, workers will receive the benefit of the tax cut when they file their taxes for 2023 sometime before April 15, 2024.
According to the Tax Foundation, the elimination of the 4% bracket will save Mississippi taxpayers up to $200 in calendar year 2023.
In addition, with the elimination of the 4% bracket, Mississippians will not be taxed on their first $18,000 for a single filer and the first $36,000 for a married couple. When the tax cut is fully enacted in 2026, a married couple earning $80,000 annually will save $834 in state taxes while a single person earning $40,000 will save $417.
State Sen. Derrick Simmons, D-Greenville, citing data from the Institute on Taxation and Economic Policy, said of the Mississippi tax cut: “Once fully implemented, only 37% of the tax cut will go to Mississippians earning, on average, $90,000 and less. In other words, nearly two-thirds of the savings from the tax cut will go to the wealthiest 20% of earners.”
Many states opted to take its surplus funds and give a more immediate, one-time benefit. They opted not to provide permanent tax relief until seeing how the aftermath of the COVID-19 pandemic and the ensuing inflation would impact the economy over a longer period. They did not want to take funds out of state coffers on a yearly basis until they knew more about whether an economic downturn would severely curtail those unprecedented revenue collections.
Some states opted to provide a combination of immediate rebates and a more modest permanent tax cut.
Mississippi leaders chose to eschew immediate relief for a permanent tax cut that when fully enacted will take about $525 million annually out of the roughly $7 billion revenue stream.
At one point this year, Lt. Gov. Delbert Hosemann and some senators proposed a combination of a tax cut and a rebate for 2022, but that proposal did not survive.
Instead of providing rebates this year, the Legislature and governor in the 2022 session opted to spend Mississippi’s $1.1 billion in surplus money providing funds for literally hundreds of projects throughout the state. These included enhancing local and state government infrastructure, tourism projects and for various other items.
In total, the Legislature appropriated about $956 million of those $1.1 billion in surplus funds on those projects and on specific needs for state agencies, leaving about $150 million in surplus funds in what is known as the capital expense fund.
The good news for the state and its citizens is that there will likely be another roughly $1.3 billion in surplus funds for the Legislature in 2023 based on the continued strong surge in revenue collections.
Stay tuned for the 2023 session to see how those funds are spent.