Income tax repeal moves in the House

The House of Representatives has not stopped its pursuit to eliminate the income tax in Mississippi.

Yesterday, the House of Representatives released a new proposal to eliminate the income tax. Shortly after its introduction, the bill passed out of the Ways and Means committee with action on the House floor expected soon.

Like last year’s bill, the mechanism for eliminating the income tax begins with increasing the tax exemption available to Mississippians. For single workers, the exemption would go up from $6,000 under current law to $37,700. For married workers, the exemption would go up from $12,000 under current law to $75,400.

The increases in exemptions mean that most Mississippi workers would pay little to no income taxes in year one of the plan. The remainder of the income tax elimination would occur in subsequent years by allowing for a reasonable rate of growth in government spending but applying any revenue collected over that rate of growth to increase the exemption until the tax was completely repealed.

Like last year’s bill, there is a sales tax offset provision designed to replace some of the revenue lost through eliminating the income tax, but the offset is much smaller this year—a full percentage point lower. Additionally, this year’s bill includes none of the special interest sales tax rate increases that drew fire from certain industries.

One particularly popular provision in last year’s bill was a plan to reduce the grocery tax by half. A similar provision is included in this year’s bill, with a reduction of the grocery tax rate from 7 percent to 4 percent over time. Added this year is a plan to supplement counties from the state to allow for a 35 percent reduction in car tags. Lastly, the bill has been designed with mechanisms to make local taxing districts whole by increasing certain diversions derived both from the general sales tax and grocery tax.

Efforts to eliminate the income tax have been building up, especially as the state is shedding population and no income tax states are among the fastest-growing states in the nation.

In Gov. Tate Reeves’ 2023 budget recommendation, he reiterated his support for eliminating the income tax. Under his proposal, the state would use $1 billion in budget surplus to eliminate the state’s existing 4 percent bracket immediately and begin eliminating the 5 percent bracket, which is responsible for most of the income tax revenue generated by the state. Under the governor’s plan, after applying the $1 billion in existing surplus, the income tax would be phased out with any revenue growth over 1.5 percent annually being applied to reduce the tax until it can be fully eliminated.

Similarly, Lt. Gov. Delbert Hosemann has echoed his support for tax reform, though he has not explicitly endorsed the idea of eliminating the income tax. The attention on the subject included summer hearings on the income tax in Mississippi, where Empower was invited to testify about the need for, and how, Mississippi can eliminate the income tax.

Over the past two years, Empower has been conducting and sharing research on the potential benefits of income tax elimination on opportunities for better jobs and higher wages in Mississippi. These efforts culminated in the release of our Better Jobs report on tax structures, which included the first dynamic modeling on income tax elimination in Mississippi, performed by Ph.D. economist Jorge Barro of the Baker Institute at Rice University. During last year’s session, Empower also helped organize a coalition of some of the most widely respected conservative thinkers in the country in support of the concept of eliminating the income tax.