A joint meeting of the House and Senate Revenue and Taxation Committees heard consultants from Moody’s Analytics on the impact of a one proposed income tax cut.
I missed the opening while watching the COVID follies in another committee. But I know this much:
One report examines the impact of the pandemic on the economy (it reduced state revenue over what would have been expected) and the impact of the federal pandemic and stimulus money (they more than overcame the pandemic loss).
Another presentation examines a cut in the top bracket of the income tax from 5.9 to 5.5 percent and includes some reductions at lower-income levels. It would cost $2.6 billion over 10 years.
Legislators argued that the state’s significant reserve fund provides a backup for a tax cut, though Sen. Jimmy Hickey noted the reserve wasn’t created for that purpose.
Sen. Keith Ingram noted that states without income taxes have significant income advantages (a high property tax in Tennessee and Texas and large oil and gas income in Texas).
Sen. Joyce Elliott asked for evidence that tax breaks for the wealthiest had helped the economy in the form of more and better jobs.
Sen. Jonathan Dismang said a lower rate could make the state a magnet for people who’d spend more money and that could create jobs. He said the tax rate plan being discussed was balanced. It provides cuts for lower-income people as well as higher-income people, he said. I
He said the majority of the cut goes to people making between $25,000 and $85,000, which is pretty equitable. There are, however, far more people in that category and individual benefits will be decidedly smaller. The chart below illustrates the impact of the proposed cut.
The Moody analysts said they hadn’t evaluated state spending and so couldn’t answer a question of whether the tax cut as proposed, with projections for continuing increases in revenue, could easily be accommodated in the current state budget.
Experience in other states provides some context. Cut taxes significantly and you’ll have to cut services or forego desired improvements in services.