Mississippi just passed a law to eliminate the income tax because principled conservatives fought for it.
A long and controversial battle has concluded in a victory for Mississippi taxpayers.
M ississippi Governor Tate Reeves (R.) has signed legislation to abolish the state’s income tax. Under the new law, the income tax rate will drop from its current 4.4 percent by 0.25 percent annually, reaching 3 percent by 2030. After that, further reductions to zero will hinge on “growth triggers” tied to state revenue. Quite how rapidly the income tax should be phased out was a major point of contention in the state legislature.
Being Mississippi, a state that prides itself on its southern civility, each time something significant passes in the state legislature, there is a tendency to pretend that change came about because of consensus. Don’t believe a word of it. Mississippi just passed a law to eliminate the income tax because principled conservatives fought for it.
Leading the charge was the House speaker, Jason White (R.), who produced a plan to phase out the income tax by 2037. Opposing him in the state Senate were some who wanted the plans watered down.
The Senate proposed a trigger that cynics might say was designed to never be pulled. It wanted revenue growth to exceed spending growth by 85 percent — a tall order at the best of times — for any trigger to take effect.
The House was under pressure to accept a deal, knowing that actual rate reduction after 2030 may be unlikely. Then, someone on the Senate side appears to have blundered.
Senate drafters apparently misplaced a decimal, setting the trigger at 0.85 percent instead of 85 percent. This lowered the threshold requirement from hundreds of millions in surplus revenue to just a few million. Now, if revenue exceeds spending by 0.85 percent of the cost of the next increment, a reduction is triggered automatically.
The House’s resolve and Senate’s misstep means that what was designed to be a brake is an accelerator. The size of each cut still of course depends on there being a surplus. Mississippi has run steady surpluses in recent years, but if the state begins to run deficits after 2030, the tax rate won’t be cut further. The revenue trigger still prevents reckless cuts that would harm the state’s fiscal health.
Someone else that helped engineer Mississippi’s income tax elimination was the previous House speaker, Philip Gunn (R.).
In 2022, Gunn had the strategic wherewithal to pass a flat income tax, phasing out the variable rates to a flat 4 percent on any income over $10,000. He understood that this would change the conversation about the income tax. Once every Mississippi household had an equal amount of skin in the game, it became much easier to talk about full elimination.
As everyone gathered around the governor’s desk to share the credit for income tax elimination, we should not lose sight of the fact that the new consensus was created because White, Gunn and a handful of others went out on a limb to fight for it.
Lowering the income tax is a crucial step in boosting a state’s competitiveness. Since Mississippi began reducing its income tax in 2022, it has attracted $19 billion in new investments. Neighboring Arkansas took note and deliberately set its tax rate below Mississippi’s to stay competitive.
Mississippi’s bold decision to phase out its income tax entirely could pressure other states to follow suit. According to the Tax Foundation, seven of the eleven southern states have slashed income taxes since 2020, while three — Florida, Texas, and Tennessee — never had an income tax to begin with.
Mississippi’s latest move may signal more than just a challenge to other states to cut taxes. It highlights how the South, as a region, offers the rest of America a compelling alternative to the high-tax models in the Northeast and West Coast.