House Moves to Eliminate Income Tax

Yesterday, the Mississippi House of Representatives made good on a promise to begin the process of eliminating Mississippi’s individual income tax. HB 1439 filed by Speaker Philip Gunn, Speaker Pro Tempore Jason White, and Ways and Means Chairman Trey Lamar, cleared its first hurdle passing out of committee. The bill now heads to the House floor for consideration by Wednesday’s revenue bill deadline. Because it is a revenue measure, it requires a three-fifths vote to pass and move onto the Senate.

How It Would Work

HB 1439 sets new deductions for both individuals ($47,700) and married couples ($95,400.00). This means that once fully implemented, an individual earner would pay no state income taxes on the first $47,700 of income and a married couple household would pay no state income taxes on the first $95,400 in income.

After these initial exemption levels take effect, the remainder of the income tax would be phased out based on revenue growth triggers.

Essentially, HB 1439 provides for a rate of revenue growth that takes the prior year’s general fund revenue and multiplies it by the inflation rate. Experienced revenue growth that exceeds this calculation must then be factored by the Department of Revenue on an annual basis to determine the amount the annual deduction can increase. The implementation of a revenue growth limit based on inflation is a smart restraint on government spending.

In our initial review of HB 1439, it was not clear if there was a path to complete income tax elimination. While less explicit than the increased exemption levels, upon further review, we do believe there is at least a path to get to complete elimination.

In exchange for a trigger-based approach to reducing, and ultimately, eliminating income taxes collected, HB 1439 makes a series of upward adjustments to consumption taxes, including Mississippi’s general sales tax rate and the sales tax rates applied to products that have historically had the tax advantage of rates substantially below that of the general sales tax rates. Notably, to address concerns about the regressivity of consumption taxes, HB 1439 cuts the rate of sales tax applied to groceries to 4.5 percent initially and eventually drops to 3.5 percent.

Empower’s Take

While there is no doubt that details will be debated and ironed out in the legislative process, the House has done good work trying to balance interests and design a fair and sustainable path to eliminating the income tax. Empower Mississippi is supportive of the effort to eliminate the income tax and achieve a net reduction in the tax burden on the people of Mississippi. The more money people keep in their pocket, the more they are able to take care of their families, contribute to their communities and grow our economy.

We will release a new report on Thursday demonstrating the material economic benefits associated with the adoption of the policy, through both dynamic economic modeling and comparative analysis.