Bill would eliminate Mississippi state income tax. Here's what you need to know.
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Feb. 23—JACKSON — A bill that would eventually eliminate the state's personal income tax while adjusting state sales taxes could receive a vote in the House of Representatives as early as Tuesday afternoon.
House Bill 1439, the Mississippi Tax Freedom Act of 2021, quietly emerged Monday and was passed by the Ways and Means Committee late in the day.
Who is supporting the bill?
The bill was authored by the three top House Republicans — Speaker Philip Gunn, Speaker Pro Tempore Jason White and Rep. Trey Lamar. Lamar leads the Ways and Means committee.
How would it eliminate the state income tax?
The legislation would eliminate the state's personal income tax starting in 2022 for:
— Individuals making up to $47,700
— Couples making up to $95,400
— Head-of-family individuals making up to $46,600
These exempt income levels would increase each year, assuming the state is bringing in enough revenue. That calculation would be done annually by the state Commissioner of Revenue, until the state income tax is phased out. The full phase-out could occur as soon as a decade from now, if revenue growth stays steady.
How would Mississippi make up the lost tax revenue?
To make up for the income tax reductions, the bill proposes:
— Increasing the sales tax on most goods to 9.5%, up from 7%.
— Increasing liquor sales tax to 9.5%, up from 7%
— Adjusting farm equipment sales tax: a 4% tax, including for equipment used for logging, up from 1.5%
— Sales taxes on cars, trucks planes and mobile homes would increase to 5.5%, up from 3%
— Sales taxes on manufacturing machinery would increase to 4%, up from 1.5%
What happens to the grocery tax in Mississippi?
But it would also include a reduction in the state's grocery tax:
— Food would be taxed at 4.5% through June 2024, down from 7% now
— Those taxes would be further reduced to 4% through June 2026
— After that, the grocery sales taxes would stand at 3.5%
Eliminating Mississippi's state income tax is not a new idea
House leadership has for years pitched eliminating the state income tax, and Gov. Tate Reeves also supports the idea. Lt. Gov. Delbert Hosemann has voiced some concerns about the proposal, specifically related to fears over revenue loss.
"You expect to be able to send your child for a public education and we are not going to go through a process to eliminate the ability of people to get educated just for a talking point," Hosemann told reporters earlier this year.
Gunn said at a Tuesday news conference — flanked by about a dozen Republicans as well as the top House Democrat, Robert Johnson of Natchez — that the legislation is the largest policy change that he's taken part in during his political career, which dates to 2004.
"For every Mississippian who pays an income tax, today is the day we start down that road to eliminate that burden for you," he said.
Gunn said the legislation has roots in several 2016 tax hearings legislators held, which included presentations by the Tax Foundation and other conservative think tanks from Washington, D.C.
The advice that came from those meetings, Gunn said, "was to move away from taxes on productivity, and move toward taxes on consumption" — meaning less income taxes and more sales taxes. He said the idea is to spread out the tax burden, including to capture taxes from tourists buying goods in Mississippi.
When the legislation is fully phased in at least a decade from now, Gunn said it would result in $1.9 billion of taxes returned to the pockets of Mississippians, a tally that includes the reduced grocery tax rate.
The speaker noted that nearly 60% of Mississippians make less than $50,000, allowing them to stop paying state income tax in 2022. Someone who makes $50,000 would see a savings of about $2,000, which someone who makes $40,000 would get about $1,535 back.
Anyone who makes more than $50,000 will see their earnings up that threshold exempted from income tax, Gunn noted.
The phase-out of income tax could be paused for a year or two if the state doesn't bring in enough revenue, meaning it could take longer than a decade for those at higher incomes to see the maximum savings.
"Growth in Mississippi has been relatively good of late, so we anticipate if the plan goes according to plan, we will be able to phase it in over a 10-year period of time," Gunn said. "If it goes well, in 10 years, no Mississippian will pay an income tax."
Gov. Tate Reeves has advocated for eliminating the state's income tax for several months, including in his State of the State speech last month. But Gunn said Tuesday he had not conferred with Reeves on the legislation, and he wasn't sure when such a discussion might take place.
House leaders have discussed several provisions of the bill with tax experts as well as the Department of Revenue, Gunn said. But there has been no larger outside analysis or independent study of the 308-page proposal to ensure it will work as intended.
Johnson said he's encouraged by the overall outline of the bill — especially offering tax cuts to working-class Mississippians. He joked during the news conference that the legislation "sounds more like something I (a Democrat) would write than they (Republicans) would write." He said he keeps looking for the "Trojan horse" in the legislation, but hasn't found it yet.
But Johnson also said House Democrats were continuing to pore over the legislation ahead of a likely Tuesday afternoon vote, adding he is concerned about the rushed nature of the sweeping proposal. He had only seen the bill Monday night when it passed out of committee, though he had discussed the broad outlines previously with Lamar, the committee chair.
"I'm trying to work with them, but this is not a three-day exercise, this is not what you do," Johnson told the Daily Journal. "This is something that needs a whole lot more (of an) independent look. The speaker says, 'We've talked to experts.' But I don't know who those experts are, I don't know who those economists are. It'd be nice to name them because I'd like to talk about it."
