JACKSON • A sweeping bill that would eliminate Mississippi’s personal income tax and shift the state’s tax burden onto sales tax within about a decade passed the House of Representatives on Tuesday afternoon.
House Bill 1439 – authored by the three top House Republicans, Speaker Philip Gunn, Speaker Pro Tempore Jason White and Rep. Trey Lamar – passed on an 85-34 vote, with all but one Republican and a few Democrats backing the measure. It now goes to the Senate for consideration.
The legislation would eliminate income taxes for individuals making up to about $50,000, or couples making about $100,000, with those income levels scheduled to gradually increase to phase out taxes for all incomes. The bill also would also cut the grocery sales tax in half over the coming years.
To offset those revenue losses, the bill would increase sales taxes in several other areas.
“The working man, the lower income, the common folks, were given priority with this plan,” Lamar told his colleagues before the vote, adding he has been working on the proposal for about five years.
The 308-page bill has been fast-tracked through the legislative process. It was quietly unveiled on Monday and quickly cleared the House Ways and Means Committee, which Lamar leads. A full vote on the House floor came less than 24 hour
s later, even as some lawmakers were still digesting the proposal.
House leaders have discussed several provisions of the bill with tax experts as well as the state Department of Revenue, Gunn said in a press briefing Tuesday. But there has been no larger outside analysis or independent study of the proposal to ensure it will work as intended.
Gov. Tate Reeves has advocated for eliminating the state’s income tax for se
veral 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.
Reeves told reporters at his own press briefing Tuesday afternoon that while the legislative proposal “has a lot of good things in it,” he wasn’t ready to fully endorse it due to broad concerns about parts of the bill that raise taxes to offset the income tax elimination.
“I certainly think that we need to eliminate the income tax,” Reeves said. “I personally support tax cuts, not tax swaps or tax transfers or tax increases, so as we move through the process that’s what we’re going to be focused on, is finding a way to get to a net tax cut for Mississippi taxpayers.”
How would it eliminate the state income tax?
The legislation would eliminate the state’s personal income tax starting in 2022 for:
- Individuals making $50,000 or less
- Couples making $100,000 or less
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, though it would be delayed if the state economy takes a downturn.
How would Mississippi make up the lost tax revenue?
To make up for the income tax reductions, the bill proposes increasing:
- General sales tax from 7% up to 9.5%
- Liquor sales tax from 7% up to 9.5%
- Farm equipment sales tax from 1.5% up to 4%
- Sales tax on cars, trucks, planes and mobile homes from 3% up to 5.5%
- Sales tax on manufacturing machinery from 1.5% up to 4%
Lamar said over the last decade the state’s general fund revenue grew by 3.2%. If that growth level continues, he said, up to $1.5% of that revenue growth in future years would go toward increased spending on state government, including to keep pace with inflation.
But the rest of any revenue growth going forward, Lamar said, would help make up for the proposed reduction in income taxes.
What happens to the grocery tax in Mississippi?
The legislation would also include a reduction in the state’s grocery tax, the highest in the nation:
- Groceries would be taxed at 4.5% through June 2024, down from 7%
- Grocery taxes would be further reduced to 4% through June 2026, and eventually down to 3.5% by fiscal year 2027
Where did this idea come from?
Gunn said the legislation has roots in several 2016 legislative tax hearings, 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 tax and more sales tax. 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.
“With the shackles of unfair tax, there is less life, less liberty, and less pursuit of happiness,” Lamar said in a speech to his colleagues that also touched on the Civil War and the Legislature’s recent vote on the state flag. “That’s what stands in the balance today, that’s what you hold in your hands now.”
Gunn 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 to that threshold exempted from income tax, Gunn noted.
The phase-out of income tax would be paused if the state doesn’t bring in enough revenue, so it could take longer than a decade for those at higher incomes to see the maximum savings.
House leaders said they expect $100,000 of income would be exempt within the first five years. At that level, officials said, 83% of taxpayers would no longer be paying state income tax.
“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.”
Democrats raised questions Tuesday about whether elderly or low-income Mississippians who don’t pay much or any income tax would see much of a benefit, given the increase in sales tax under the proposal. Sales taxes are regressive, meaning they are applied to everyone and take a larger share of income from low-income people than wealthier residents, worsening income inequalities.
But Rep. Robert Johnson of Natchez, the Democratic leader, voted for the bill and told the Daily Journal he believes most people would see a net benefit.
“Even in places like where I live and the unemployment rate is high, most poor people work,” he said. “So the income tax cut would be good for them.”
Johnson said the reduction in grocery tax in the bill is a positive step, but believes it should be eliminated. And he said he plans to push for additional benefits for low-income workers to be added to the bill.
What happens next?
The bill now moves to the Senate, where Lt. Gov. Delbert Hosemann – who presides over that chamber – 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.
The first-term lieutenant governor has also voiced skepticism over simply shifting the tax burden from one revenue stream to another.
“Shuffling the deck is not appealing to me,” Hosemann said in a December interview with the Daily Journal.