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Legislature Cuts, But Does Not Abolish State Income Tax

The Mississippi Legislature passed an income-tax reform bill that heavily reduces, but does not fully eliminate, the state’s income-tax structure. Photo by Nick Judin

JACKSON, Miss.—Mississippi will cut, but not abolish, its state income tax, delivering a significant reduction to its tax revenue while keeping the majority of the state’s top tax bracket. 

After a bruising fight between Mississippi’s House and Senate, the Legislature passed a significant income tax-reduction bill on Sunday, doing away with the state’s lower tax bracket and shearing 1% off of the top bracket. The total cut to revenue will amount to $524 million after the plan fully phases in by 2026, and leave Mississippi with a flat state income tax of 4% on all taxable income over $10,000.

Once Gov. Tate Reeves signs the bill, as he has indicated he will, Mississippi will immediately do away with its original 4% tax bracket on taxable income between $5,000 and $10,000. Mississippi is already phasing out the last remnants of its previous 3% tax on income under $5,000. The immediate 4% cut represents a revenue reduction of roughly $185 million.

Shorn from the initial proposals are reductions on car tags and taxes on groceries, regressive taxes that were to be cut in previous versions of the competing tax plans. The sales-tax increases the House initially included as a revenue offset are gone as well.

A Bite Of The Apple

Sen. Josh Harkins, Senate Finance Committee chairman and a Rankin County Republican, is one of the key negotiators in the income-tax debate. He told the Mississippi Free Press yesterday that the plan was the responsible pathway to tax reduction, giving the state time to examine revenue growth in the post-pandemic period before attempting to fully deconstruct the income tax.

“We basically just didn’t want to lock into a long, protracted drawdown,” Harkins said. “We wanted to be able to take a bite of the apple, come back, reassess, and if things are going good then we’ll make additional cuts. 

Sen. Josh Harkins, R-Flowood, told the Mississippi Free Press that the finalized income-tax reduction plan would allow the state to reassess its revenue growth before making further cuts. Photo by Nick Judin

Any discussion of additional tax tweaks—like a reduction in the grocery tax, which disproportionately affects poorer Mississippians who spend a larger percentage of their income on basic goods—will have to wait as well.

Hawkins said an immediate reassessment of possible cuts to sales taxes were not in the cards. But for the future, “a lot of it depends on what the revenues are doing, and just what the environment looks like in the economy,” he added.

“When we get four or five years down the road, we’ll have a better snapshot of what’s going on,” Harkins concluded. “Unfortunately, nobody has a crystal ball.”

State Leaders Celebrate, Cautiously 

Without any reductions in sales taxes, the tax plan is essentially still a regressive cut, favoring wealthier Mississippians who owe a larger percentage of their income in taxes. But it is also an acknowledgement of the Senate’s firm refusal to commit to a plan that would leave billions, not millions, missing from the state’s budget plans. 

Since the beginning of his term, Lt. Gov. Delbert Hosemann has been openly skeptical of quick pathways to income tax repeal.

“It’s a $2-billion dollar question,” Hosemann told this reporter in late 2020. “I am open to any solution to that. But, until we have a solution … it’s not ‘Field of Dreams.’ I don’t print money. We have to have enough funds to pay for highway patrol, education, all the other things we pay for as a state.”

Man in a grey suit speaking at a podium
House Speaker Philip Gunn, R-Clinton, was cautiously celebratory after agreeing upon the final structure of the tax bill, which replaces his and the American Legislative Exchange Council’s wish that Mississippi cut out the entire income tax. Photo by Nick Judin

Hosemann released a statement shortly after parties in both chambers came to an agreement on the cuts. “This tax cut is the largest in Mississippi’s history,” Hosemann wrote. “It is also responsible. Our constituents expect us to fund core government services in infrastructure, education, healthcare, and other areas.  Our budget experts have assured us we can continue to do this and significantly ease the tax burden on hard-working Mississippians.”

Little discussion accompanied the final conference reports as they slipped in under a late evening deadline on March 27. While the plan offers some concessions to House Speaker Philip Gunn, R-Clinton, and his ambitious, costly plan to abolish state income tax entirely, it mostly maintains the tax revenue that Hosemann, leader of the state Senate, warned must be maintained.

Absent too was Gunn’s plan to tie American Rescue Plan Act spending to a full repeal of the income tax. Earlier in the session, after Gunn made his call for a hold to ARPA spending and a potential special session, Rep. Dan Eubanks, R-Walls, predicted that the money would find its way to the state regardless of any threats otherwise.

“The money’s there, and it’s going to get spent eventually,” Eubanks told the Mississippi Free Press. “I’ve never known Mississippi to give up free money from the federal government … I think this is just another bargaining chip.”

Gunn previously served as chairman of the American Legislative Executive Council, a right-wing bill mill that provides template laws to states across the U.S. One of ALEC’s key priorities is the abolishing of state income taxes. Gunn continues to serve on the ALEC board.

Still, Gunn and other advocates for full elimination of the state tax cautiously celebrated Sunday night, eager to highlight the cuts while still laying the groundwork for another push in session to come. “This tax plan will give $525 million back to the people who earned it,” Gunn wrote in a statement on social media. “This is not the end of our efforts to eliminate the tax on work–it is a bold beginning.”

Gov. Reeves, who took a hands-off approach early in the tax battle, has taken a more vocal role in favor of income-tax elimination in recent weeks. After details of the deal emerged, the governor struck a more reserved tone, lamenting the resistance the full income tax repeal faced in the also-majority-Republican Senate.

“The deal agreed to by the House and Senate is a $500M+ tax cut. That’s good,” Reeves wrote. “I still believe we can and should eliminate the income tax. The fiscal environment is right. Sadly, the political environment in the MS Senate is not.”

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