While the state is still in a strong financial position, the downward trend in government revenue continued for May, according to a Legislative Budget Committee report.
Through May, the 11th month of the fiscal year, the state has collected $6.9 billion in revenue or $17.9 million (-0.26%) less than what was collected during the same period the previous fiscal year. It is rare for the state to collect less revenue than was collected in the previous year.
The collections would be much worse if not for a substantial spike in interest earnings due primarily to increased interest rates. Through May the state has collected $62 million or 96.7% more in interest earnings than it did during the same period last year.
The biggest reason for the drop in revenue is that the state is collecting $155.7 million or 7.2% less in personal income taxes than were collected during the same period last year. The slowdown in state income taxes is due largely to the $525 million cut in the personal income tax passed in the 2022 legislative session and that will be fully phased in by 2026.
Many of the supporters of the 2022 tax cut said the revenue lost would be offset by an increase in the sale tax on retail items. They reasoned an economic boon from reducing the income tax would generate more consumer spending that would result in increased sales tax collections. But increased sales tax collections have not made up for the loss of income taxes.
While personal income tax collections are down nearly $156 million million for the year, sales tax collections are up $78.2 million or 3.1% and use tax collections (the 7% sales tax on items purchased out of state primarily through the internet) are up $14.4 million or 4%.
Of the revenue collections, House Speaker Jason White, R-West, said, “We are watching. I would not say we are concerned.”
READ MORE: Speaker White eyes major cuts to Mississippi grocery, income taxes for 2025 session
White pointed out that in recent years the Legislature has collected significantly more revenue than it has budgeted. Because of conservative spending, the decline in revenue has not negatively impacted that state budget, though, many would argue that various needs have gone unmet because of the decision by politicians not to spend additional, available revenue.
White is hoping to pass during the upcoming session another major tax cut even as two past tax cuts are still being phased in. He wants to cut the 7% tax on groceries in half and to phase out the personal income tax, which still accounts for nearly one-third of total state revenue. The cuts would presumably be offset in part by increases in sales taxes on retail items other than groceries.
White said as long as the state is colleting “600 million or $700 million” more than is being appropriated, many Republicans will want to enact additional tax cuts.
The state has not collected less revenue than it did the previous year since fiscal year 2020 during the pandemic. Soon after that state revenue exploded thanks in part to unprecedented money from the federal government provided as part of COVID-19 relief efforts. Additionally, inflation has grown state revenues. Rising costs caused by inflation increase the amount of money the state received in sales taxes.
Other times the state collected less than the previous year include:
- In fiscal year 2017 (presumably because of multiple tax cuts enacted over a period of years).
- In 2009 and 2010 during the Great Recession.
- In the early 2000s.
These prior slowdowns in revenue resulted in major budget cuts. But because collections have been so strong in recent years before the current slowdown began, budget cuts have not been needed thus far.
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