A bill pending in the Mississippi Senate could make Mississippi the 10th state with no income tax by 2034.
According to the financial website Investopedia, eight states, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming currently do not levy any income tax. New Hampshire does not tax wages earned, but dividends and interest.
The New Hampshire Senate passed legislation to phase out the investment income tax of 1% per year over five years, with full implementation by 2027, making New Hampshire the ninth tax-free state on income.
House Bill 531, known as the Mississippi Tax Freedom Act of 2022, which would make Mississippi the 10th state, passed the House on January 12 by a 107-4 vote and proposes to phase out state income tax over a 12-year period.
“I just believe that allowing our citizens to keep more of their hard-earned money is a good thing; there’s really no downside to it,” said House Speaker Philip Gunn, the author of the bill. “The elimination of income tax allows them to do that. They are better able to support themselves, support their families, improve their quality of life, give more to their church, more to the community.
“We’ve been looking to do this for a long time,” he said.
The plan proposes to cut about $2.2 billion over 12 years by eliminating state income tax, which Gunn says collects about $1.8 billion a year, by cutting sales tax on groceries from 7% to 4% and cutting the cost of car tags in half.
Currently, Gunn said, the first $5,000 of an individual’s income is exempt from income tax, and anything between $5,000 and $10,000 is taxed at 4%. Anything over $10,000 is taxed at 5%. The House bill first proposes exempting everything up to $40,000.
“So only the first $40,000 of your income will be tax-free in the first year,” he said. “We are giving immediate tax relief to everyone who earns $40,000 or less. This puts $1,300 – $2,600 for married couples – back into the pocket of the person paying that income tax.
According to the Mississippi Department of Revenue, he said, about 48 percent of taxpayers in the state earn $40,000 or less.
After seven years, he said, the exemption increases to $100,000.
“In 12 years you get to the point where nobody pays income tax,” he said.
Gunn said the bill increases tax diversions to cities to offset lost revenue from the reduced sales tax on groceries and that increased diversions to counties will offset lost revenue. revenue from car tags.
Revenue lost by the state will be recouped through growth and an increase in the state sales tax from 7% to 8.5%. The sales tax increase would bring in about $700 million a year.
“The sales tax hike is a red herring that’s meant to deter people from doing good, solid public policy,” Gunn said. “The overwhelming majority of what people spend their money on is not subject to sales tax – mortgages, gas, drugs, insurance, utilities are not subject to sales tax. sale, so three quarters of what people spend is not subject to sales tax.
“We’ve halved the food tax, so you can’t use it anymore,” he added. “When you say the sales tax goes up a penny and a half, people need to understand that’s an insignificant increase in their spending compared to what they get by keeping their income tax . Do the math.
“To eat that $1,300 with a one and a half cent increase in sales tax, they (a taxpayer) would have to spend $86,000 (in one year),” Gunn said. “They will never spend more money than they get back in their income tax. On top of that, they can halve their car tag and lower their grocery bill. The amount of savings they get is over $1,300.
“On the one hand, you give back to the people 2.2 billion dollars and you recover 700 million dollars; it’s a $1.5 billion tax cut for citizens,” he said. “It’s significant; it’s huge and that’s what I call transformative. This is how we change lives and put money back in their pockets.
“That $1.5 billion will be phased out over 12 years through growth, so we’re not going to use that $1.5 billion right away,” he said. “We have protections in the bill against our tax revenue being reduced in a year when things might not go as well.”
Gunn said the bill contained a provision that placed a 1.5% spending cap on growth.
“We look at our revenue year over year,” he said. “This year, it’s $6 billion; next year it could be $6.5 billion. So 1.5% of this growth goes back into the budget; anything over that 1.5% is issued to gradually reduce income tax each year.
He said the state’s average budget growth over the past 10 years has been 3.2% and the state’s economy is expected to continue at that rate.
“I don’t know if there’s anything more important we can do for the state of Mississippi than to move away from taxing people’s income and move toward a sales tax based largely on the whole of state,” District 54 Rep. Kevin Ford, R-Vicksburg, said.
“You can’t cut $1.8 billion from the budget without having to replace it. Texas and Tennessee ended up having more sales taxes, but we’ll be less than them,” he said. “Halving taxes on people’s cars will also be a benefit to every state taxpayer who buys a car tag.”
Ford said the elimination of state income tax should be a big draw for the state when it recruits companies, adding that it uses the absence of a state income tax the state as a recruitment tool.
Having a state income tax puts Mississippi at a disadvantage when establishing large businesses, Ford said.
“Tennessee tells them that none of their employees will have to pay income tax, so it’s easier to get qualified employees because it’s just hard to compete when they say people who are going to get good income don’t have to pay income tax; it’s hard to recruit,” he says.
Dist. 55 Rep. Oscar Denton, D-Vicksburg, said the reduction in car tags and the grocery tax “made it really hard for me not to vote for it.”
State Sen. Briggs Hopson, R-Vicksburg, said he has reviewed the bill and is reviewing historical information on the state’s economy, income growth and inflation “and I’m trying to take into account considerations such as the federal funds that are factored into our economy and also the budget cuts that we had two years ago that are still having some effect on our state budget.
Hopson, who is chairman of the Senate Appropriations Committee, said he is also looking at House numbers “as well as other fiscal possibilities to see what we can offer the Senate.
“I don’t think the Senate is inclined to pass the House bill because of the tax increases and other issues,” Hopson said. “I’m looking at all options to see if we can come up with a possible tax relief plan for citizens.”
Gunn said he challenges anyone who opposes the plan “to show me the numbers. We can do a lot of political rhetoric about sales tax and the reality is that no one has provided the data to back it up. Part of the beauty of this (bill) is that it gives tax relief to lower income brackets first.
“I don’t want people to be fooled by code words they’re going to hear like tax relief, tax cuts, tax reform. … We’re talking about tax elimination,” Gunn said. “We are considering the complete elimination of this tax.”