Mississippi House Speaker Proposes “Tax Swap” to Fund Bridge Repair

April 16, 2018

Introduction

Last Thursday, Mississippi House Speaker Philip Gunn (R) proposed a new “tax swap” designed to target additional revenue toward the state’s infrastructure repair needs. This announcement follows an executive order issued by Governor Phil Bryant (R) last week declaring a state of emergency and ordering the immediate closure of more than 100 locally owned bridges deemed unsafe by federal officials. 

Tax Swap Proposal

Speaker Gunn said his tax swap proposal, which he plans to submit to Governor Bryant and Lieutenant Governor Tate Reeves (R), would eliminate an income tax bracket while increasing the tax rate on fuel. This proposal aims to redirect funding that would otherwise be collected as general revenue so additional funds can be allocated toward the state’s infrastructure repair needs.

Specifically, the Speaker’s proposal would increase the state fuel tax by $0.02 per year over four years, and index the tax to inflation afterward. It would also phase out the 4 percent individual and corporate income tax bracket. These adjustments would modify revenue sources and targets while keeping overall state revenue projections roughly consistent with current levels.

Mississippi’s Infrastructure Disrepair Warrants a Smarter Fuel Tax

Currently, Mississippi levies an excise tax on fuel at a rate of $0.18 per gallon, with revenue directed specifically toward state highway programs. This $0.18 rate is not indexed to inflation and has been left unchanged for nearly three decades. As it stands, Mississippi has one of the lowest gas tax rates in the country and the lowest among all bordering states. At the same time, Mississippi – like many other states – faces an annual infrastructure funding shortfall, estimated at $400 million. If this revenue shortfall estimate doesn’t speak for itself, the bridge closures certainly do: Mississippi’s stagnant gas tax simply isn’t generating sufficient revenue to maintain the state’s highway infrastructure networks.

While some in Mississippi may express concerns about generating additional revenue through an increased gas tax, a fuel excise tax is the best situated revenue option to ensure the taxpayers who collectively contribute to the wear and tear on Mississippi’s roads are the same taxpayers who are paying for the maintenance of those roads. It also allows the state to ensure that it has adequate funding for its infrastructure needs.  

Mississippi’s Taxpayers Deserve a Simpler, Flatter Income Tax

With a graduated structure and rates set at 3 percent, 4 percent, and 5 percent, Mississippi’s current income tax system is unnecessarily complex. While Mississippi’s top income tax rate, set at 5 percent, is fairly competitive with the rates of neighboring states, Mississippi should make continued progress toward a flatter income tax structure.

The Taxpayer Pay Raise Act of 2016 took a step in the right direction by initiating phaseout of the 3 percent rate, which took effect in 2018 and will be fully phased out by 2022. The 3 percent bracket applies to the first $5,000 in income. Speaker Gunn’s new proposal builds upon that base by phasing out the state’s 4 percent income tax bracket, which applies to the next $5,000 in income (from $5,000 to $10,000). If adopted, the first $10,000 in income (plus any applicable exemptions or standard deductions) would be exempt from the state’s income tax, targeting the benefit to low-income households.

In the fall of 2016, following that law’s enactment, Nicole Kaeding testified three times before the Mississippi Tax Policy Panel, recommending further consolidation of the state’s individual and corporate income tax brackets and the indexing of a consolidated bracket to inflation. That recommendation is a key component of Speaker Gunn’s plan.

Improving Mississippi’s Tax Climate

The combination of policies in Speaker’s Gunn tax swap package would also improve Mississippi’s competitiveness. When fully phased in, the plan would improve Mississippi’s ranking on the State Business Tax Climate Index from 24th to 19th best in the country.[1]

Mississippi’s Ranking on the State Business Tax Climate Index
  Current Speaker Gunn’s Proposal

Overall

24 19

Corporate Tax

11 11

Income Tax

20 18

Sales Tax

38 39

Property Tax

35 35

Unemployment Tax

5 5

A Tax Swap Would Help Repair Bridges While Creating a Better Tax Code

There are many ways Mississippi could adjust its tax code to increase infrastructure funding, but few proposals would simultaneously improve the state’s tax code. Pairing an income tax cut with a gas tax increase allows the state to accomplish multiple goals at the same time. It dedicates adequate funding toward the state’s highway infrastructure needs while targeting income tax cuts to those at the lower end of the income spectrum, mitigating any perceived regressivity from the gas tax increase.

Should Mississippi choose to increase its gas tax, phase out its graduated income tax structure, and index the gas tax to inflation, the state will be well on its way to repairing its bridges while creating a smarter system that better serves its taxpayers.


[1] This does not include the impacts of the state’s ongoing franchise tax elimination, but does include the elimination of the 3 percent income tax bracket. Mississippi’s rates and brackets for individual and corporate income are currently tied together. This score assumes that that continues.

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