Mississippi, one of the poorest states in the US with chronically underfunded schools and struggling rural hospitals, saw lawmakers adopt the state’s largest-ever tax reduction on Sunday.
The Republican-controlled state House and Senate passed a plan to phase out the state income tax over four years, beginning in 2023. Republican Gov. Tate Reeves will sign the law. He has stated that he intends to sign it into law.
“This impacts every Mississippian who wakes up and goes to work,” Flowood Republican Senate Finance Committee Chairman Josh Harkins said Sunday.
Supporters argue that a sizable tax cut will stimulate economic growth and bring new inhabitants to Mississippi, one of three states that lost population in the decade preceding the 2020 Census.
“With this tax cut, Mississippi will become one of the most business-friendly states in the country,” Republican House Speaker Philip Gunn said.
Opponents argue that lowering the income tax will decrease funding for schools, health care, roads, and other essential services, affecting Mississippi’s poor and working-class population.
Sen. David Jordan, a Greenwood Democrat, expressed worry that legislators will be unable to fund anticipated government services if the state reduces taxes.
“I’m not favoring all of us being hanged in effigy,” Jordan stated. Mississippi’s income tax generates 34% of state revenue. Wealthy individuals would benefit financially from income tax elimination, as they already pay the most.
The poorest residents would receive no benefit since their incomes are too low to qualify for state income tax.
The 4% income tax rate will be removed beginning next year. The 5% bracket would be dropped to 4% during the next three years.
Legislators indicated that the tax-free income thresholds would be $18,300 for an individual and $36,600 for a married pair after the first year.
Harkins estimated that the tax decrease would cost the state $185 million in the first year. By the end of the third year, the sum would have risen to $525 million. Nearly $7 billion of the budget is provided by the state.
Mississippi’s tax receipts have been solid in recent months, in part because of increased federal expenditure during the COVID-19 outbreak. However, the state confronts costly fiscal problems, including a lengthy court dispute requiring reforms to the state’s mental health system.
Legislators have seldom included the necessary funds in a school finance system since the late 1990s. The state’s correctional system was placed under federal investigation following riots in late 2019 and early 2020 that brought attention to inmates’ substandard living conditions.
According to the National Conference of State Legislatures, nine states have no income tax, while New Hampshire charges just interest and dividends.
Opponents of the Mississippi income tax reduction refer to Republican-led Kansas, which adopted significant tax cuts in 2012 and 2013 but overturned the majority of them in 2017 due to substantial and recurring budget deficits.
Under current Mississippi law, a single individual without dependents pays no income tax on the first $12,300 of income. As a result of long-ago tax decreases, the tax-free level will climb to $13,300. The state taxes the next $5,000 in income at 4% and all income above that at 5%.