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Stevenson: On PERS, income tax, and grocery tax issues

Note: The following is an opinion-editorial article on legislative issues in the Mississippi Legislature, offered and written by Jon Stevenson, a DeSoto County resident and businessman. The article reflects Stevenson’s opinion.  

By Jon Stevenson

This year, the Legislature of the State of Mississippi is considering several changes to the tax and spending structure of the State Government. The reason that I say “structure” is that many of the proposals will fundamentally change the way the Government could be funded and lock in future tax revenues and spending for decades to come. These proposals are very consequential for all taxpayers of Mississippi. I wanted to outline the most important of these proposals and give my opinion on them: the elimination of the Income Tax, a cut in the Grocery Tax, an expansion of Medicaid in the State and proposals to help stabilize PERS.

Let’s start off with the elephant in the room: the Public Employee Retirement System or PERS. PERS is on an unsustainable financial trajectory. Currently PERS is only funded with 59.9% of its future liabilities and has a deficit of $20.5 billion. For comparison the entire state budget is approximately $7.5 billion per year. The good news is that the state is projected to have a budget surplus this year and the $20.5 billion doesn’t have to be paid out next year but over the next 30 years to retirees. At some point the legislature is going to have to restructure benefits to retirees in some way, but until then an excellent start would be to put a lump sum payment into the system from the budget surplus now, while interest rates are high, and demonstrate to state workers that the state government is going to sacrifice now before the retirees are asked to give up anything. According to the Mississippi Center for Public Policy the 2024 FY budget should have a surplus of $800 million. A lump sum of $400 million would go a long way to shoring up PERS in the short run.

Lt. Gov. Delbert Hosemann has voiced support for reducing the grocery tax to help working and poor families in the state. This is a laudable goal, all things being equal. The problem occurs when you factor in the ability of our cities and municipalities to fund themselves. Cities get tax revenue from two primary sources; property taxes and sales taxes. If the grocery tax is reduced 3.5% it would cut most municipality’s sales tax collections in half. Without additional funding from the state to cities this would force cities to either make dramatic cuts to police and fire, the two biggest line items in their budgets, or to make large increases in property taxes. The grocery tax cut that the Lieutenant Governor is proposing is really a stealth increase on property owners or a way to transfer wealth from the middle class and the rich to the poor. While tax cuts are a traditional Republican proposal, as always the devil is in the details and these details don’t look good.

Another proposal from the campaign of Democratic candidate for Governor Brandon Presley was the expansion of Medicare in the state using the guidelines from the Affordable Care Act, better known as Obamacare. This has gotten some traction in the legislature due to the poor financial condition of many Mississippi Rural Hospitals as a potential lifeline to support them as well as expand coverage to Mississippi’s poor. I’m not going to speak to the merits of whether or not we should do this but only to the financial impact of it. First, many states with similar demographic profiles like Mississippi such as Louisiana and Arkansas have expanded Medicaid and their rural hospitals are in poor financial condition, just like ours. This would belie the argument that this would be a financial lifeline for these hospitals and would suggest that their problems go deeper than just Medicaid funding. An expansion of Medicaid would also increase costs, permanently on the state budget. Most estimates, according to the Magnolia Tribune say the cost of Medicaid expansion in year one would be $1.81 billion with the State of Mississippi paying an additional $181 million of the cost, but once expanded the total cost would go up to $3.85 billion per year with the State paying and additional $385 million or nearly half of our current budget surplus. That’s an awfully expensive way to try to shore up hospitals, when it’s already been shown not to work in Louisiana and Arkansas.

The final proposal is for the elimination of the State Income Tax. Gov. Tate Reeves wants to phase out the state income tax within three years. When you look at other states that have no income tax you can understand the attractiveness of his proposal. In DeSoto County, where we border the no-income tax State of Tennessee, one of the primary obstacles of people moving from Memphis, a notorious crime haven, to DeSoto County is our income tax. Many people have chosen to have daily commutes of up to an hour from Oakland, Tennessee and Somerville, Tennessee, rather than a 20-minute commute from Olive Branch or Hernando just to miss out on our income tax. An income tax cut would result in an explosion of growth in North Mississippi and I would expect additional growth in the rest of the state. I don’t believe that the state could simply cut the income tax without offsetting the decreasing tax revenue in some other area. In other words, the increased growth alone from the elimination of the income tax won’t compensate complexly for its elimination. Tennessee, for example, has a substantially higher sales tax than Mississippi as a way of funding their State Government, and I would expect this would have to be done to balance the books in Mississippi as well. If your goal is driving growth and increasing prosperity, the income tax elimination would be the way to go in my opinion.

Effective governing is about balancing objectives and making choices. Republicans & Conservatives have historically concentrated on increasing prosperity and growing the economic pie in order to improve the lives of all of its citizens. A Grocery Tax cut would not accomplish that, and an expansion of Medicaid won’t either. The elimination of the state income tax would expand prosperity in the state and grow the economic pie for everyone and by shoring up PERS with a one-time payment we can, in good conscience, say that we are keeping our promises to our public employees for the future. Democrats have an endless list of proposals to fund, always claiming moral superiority. Unfortunately Democratic proposals usually lead to what we see nationally right now; economic dislocation and inflation. Conservative Republican principals have consistently proven to produce the best economic outcomes for our citizens and give us the resources to help our neighbors. As a farmer would say; “You have to plant the seed cord, not eat it, if you want to have a future!” Once we have a harvest we can feed our neighbor and the elimination of the state income tax gives us the best hope to grow our economy and hopefully return Mississippi back to growth overall.

Jon Stevenson – DeSoto County Resident

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