Mississippi part of growing flat tax trend
Earlier this year, Mississippi lawmakers adopted legislation that will institute a 4 percent flat tax in the state.
The Mississippi Tax Freedom Act of 2022 phases in the more than $500 million tax cut over the next four years. In the first year, it eliminates Mississippi’s current 4 percent bracket that currently applies to the first $5,000 in taxed income. In years two through four, it will reduce the rate that applies to all income over $10,000 from 5 percent down to 4 percent.
Under the change, individuals will not pay income taxes on their first $18,300 of taxable income and families will not pay taxes on their first $36,600 of income. A worker who makes $40,000 per year will see their taxes reduced by $417 a year, while a married couple making $80,000 would save $834 a year.
But Mississippi isn’t the only state moving in this direction. For the past two years, states have been reducing taxes with a focus on shifting away from graduated income taxes to flat taxes.
According to Tax Foundation, three other states adopted flat taxes this year. Along with Mississippi, this includes Iowa, Georgia, and Idaho. What makes this interesting is that we had previously only had four states move from a graduated-rate income tax to a flat tax…in more than 100 years. A big year indeed.
Flat taxes are simple, but they also provide certainty for individuals and businesses, easing decisions regarding investment and relocation.
Every state competes with one another. They compete for industry. They compete for talent. If a state is not reducing taxes, it is becoming less competitive each day.