Stevenson: Taxes and Incentives

By Jon Stevenson

Note: The following opinion-editorial article is written and provided by Jon Stevenson, a DeSoto County businessman and head of the DeSoto Integrity and Government Political Action Committee. Opinions expressed are those of the author and not necessarily that of this publication.

Mar 4, 2025 – What is often lost in the debate over the income tax in the State of  Mississippi is a fundamental understanding of what taxes are and what they do. Most people, including those in government, view taxes and tax policy simply as a way to raise revenue for funding  government services and regulation. Those people are absolutely  correct; taxes exist for that purpose. However, taxes have a  secondary, and almost equally important, function: as an incentive for  taxpayer behavior. 

There is a fundamental axiom in behavioral economics: Tax what you  want less of! If you put a tax on something, you increase its cost, and  consumers will do less of it. Sometimes the difference is small, and  sometimes it’s significant. As economists will say, it depends on the  elasticity of demand. That’s just a fancy way of saying how essential  the product is to a person. If you need insulin, you will typically pay  whatever you can for it; otherwise, you’ll die. If it’s a latte, well, if the  price goes up, you can always do without—no problem. 

In the case of the state income tax in Mississippi, it is a tax on work.  So, if we look at the income tax from the perspective of incentives, the  more we tax work, the less work we will get. Now, that has limits. Most  people have to work to survive, even those on welfare, and most  people work hard to achieve a better standard of living. But the tax on  work matters. Mississippi has one of the worst workforce participation  rates in the nation. 

Seventy-one percent of able-bodied adults in Mississippi participate in  the workforce. According to the St. Louis Federal Reserve, the only  state with worse participation is West Virginia, at 67%. I’m not saying  that removing the income tax from the state will fix the problem  entirely, but it does move the incentives in the right direction.  Additionally, shifting the tax from work to consumption increases the  incentives for work.

All people consume to live. If your cost for everyday items goes up,  even slightly, you’ll have to earn more money to maintain your  standard of living. Increasing consumption costs also encourages  people to save and invest more, which matters. It makes an economy  more resilient to shocks by increasing available capital and decreasing  wasteful spending. Spending becomes more efficient, as does capital  allocation. Before you panic, the House bill lowered consumption  taxes on groceries so that it eases the burden on the poor and  retirees! 

House Bill 1 (HB1), as proposed in the State House of  Representatives, aligns all the correct incentives for future growth and  economic success in our state. The Senate bill, while moving in the  right direction, doesn’t effectively align the behavioral incentives to  encourage the economic behavior we want in our state. The Senate  bill treats tax policy as a simple method to fund the government without considering the behavioral economic incentives necessary to  supercharge growth in our state. 

A great struggle is happening in Jackson right now. This affects not  only DeSoto County but the entire state. Conservative governance in  our state has created excellent opportunities for Mississippi, as seen  in rising educational attainment, increasing economic investment and  development, and job growth—all thanks to the conservative,  Republican leadership in Jackson. But a job half done well is not a job  well done! Please call your Senators and House members and ask  them to support House Bill 1. Let’s set the stage for the next  “Mississippi Miracle”!