Mississippi lawmakers strike deal to reduce income taxes; here’s what you need to know
Published 9:46 pm Saturday, March 26, 2022
Mississippi House and Senate leaders reached a deal Saturday to reduce the state income tax over four years, saying it would be the largest tax cut in the state’s history.
“We are positioning ourselves to be one of the most tax-friendly states in the country,” Republican House Speaker Philip Gunn said.
Starting next year, the 4% income tax bracket would be eliminated. The following three years, the 5% bracket would be reduced to 4%.
After the first year, the tax-free income levels would be $18,300 for a single person and $36,600 for a married couple, lawmakers said.
Republican Lt. Gov. Delbert Hosemann said the tax cut plan is responsible.
“Our constituents expect us to fund core government services in infrastructure, education, healthcare and other areas,” Hosemann said in a statement Saturday. “Our budget experts have assured us we can continue to do this and significantly ease the tax burden on hardworking Mississippians.”
Mississippi is one of the poorest states in the nation, and its income tax generates 34% of state revenue. The poorest residents would see no gain from eliminating the income tax because they are not paying it now.
Mississippi has enjoyed robust tax collections the past several months, partly because of increased federal spending during the COVID-19 pandemic. But the state also faces expensive budget items, including a long-running court case that requires improvements to the mental health system. Legislators have rarely put all the required money into a school funding formula that has been in law since the late 1990s.
Senate Finance Committee Chairman Josh Harkins, a Republican from Brandon, said the tax cut would reduce state revenue by $185 million the first year. By the final year, the figure would be $525 million. The state-funded portion of the budget is nearly $7 billion.
The tax cut plan will come up for votes in the full House and Senate in coming days, and it is expected to pass.
Gunn and Hosemann had been at odds over tax-cut proposals the past several weeks.
Gunn and Republican Gov. Tate Reeves wanted to phase out Mississippi’s income tax over several years. Hosemann sought a more cautious plan to reduce, but not eliminate, the income tax and to reduce the grocery tax and temporarily suspend the state gasoline tax.
Under the deal reached Saturday, the gas tax and the grocery tax would not change. The deal specifies that by 2026, legislators should evaluate whether to phase out the final bits of the income tax.
“The goal is elimination of the income tax in Mississippi, and we have made a major milestone toward that goal here today,” said House Ways and Means Committee Chairman Trey Lamar, a Republican from Senatobia.
Reeves on Saturday called the plan “a good step” but said he still wants to eliminate the income tax.
“It is a win at the beginning of this fight. It is not the end,” he wrote on Twitter.
Russ Latino is president of Empower Mississippi, a group that advocates limited government and has pushed for elimination of the income tax. He praised the deal legislators reached Saturday.
“It’s happening in a quick way that’s going to put money back into working people’s pockets at a time where we’ve got record inflation,” Latino said.
Nine states don’t have an income tax and one more, New Hampshire, only taxes interest and dividends, according to the National Conference of State Legislatures. Opponents of repealing the Mississippi income tax point to Republican-led Kansas, which enacted big tax cuts in 2012 and 2013 but repealed many of them in 2017 after large and persistent budget shortfalls.
Under current laws, a single person with no dependents in Mississippi currently pays no tax on the first $12,300 of income. Because of tax cuts approved years ago, the tax-free amount will increase to $13,300 after this year. The state has a 4% tax on the next $5,000 of income and a 5% tax on all income above that.
Saturday night was the deadline for legislators to file final versions of tax bills and budget bills. They missed the budget deadline and filed placeholder bills. They face a Monday deadline to approve spending plans for the state budget year begins July 1.