The Magnolia state plans to eliminate its personal income tax. This will help Mississippi join its northern neighbor Tennessee and several other nearby states in not taxing work or investment. The eight states without an income tax, like Florida, Texas, and Tennessee, have historically been among the fastest-growing states in the country.
Mississippians should feel encouraged that their elected officials are boldly helping the state become more attractive to new businesses and individual opportunities. Only business and investment taxes are worse than income taxes in discouraging economic growth, and Mississippi has positioned itself for stronger growth soon.
The tax plan gradually phases out the income tax first by reducing the tax rate from 4% to 3% by 2030. The march to zero will be completed as the state hits surplus triggers to ensure the state can eliminate the income tax responsibly.
Mississippi Center for Public Policy’s Responsible Mississippi Budget holds spending down to no more than the average taxpayer can afford, helping to support larger surpluses for income tax reductions. This surplus trigger for tax cuts instead of just revenue triggers helps eliminate income taxes quickly and supports more economic activity.
This could lead to an $830 million tax cut, which would increase business investment by $420 million, consumer spending by $210 million, total state economic output by $790 million, and employment by 5,000 jobs. Given these sizable increases in economic activity, the dynamic effects of such a pro-growth approach would result in a $770 million tax cut rather than the $830 million static estimate.
As economic growth compounds over time, the state will find it easier to achieve zero income taxes. While Washington state enacted a new income tax in 2022, removing it from the list of eight no-income tax states, more states are enacting good tax policies that move to a flat or no-income tax. These states become more attractive for additional business investment or relocation, which helps workers in the state.
Reducing income taxes for everyone is a much better economic policy than an industrial policy that gives away tax breaks to big businesses to lure them to a state. By eliminating the income tax, Mississippi benefits everyone instead of only powerful companies or those with the best lobbyists. This tax plan gives the state a competitive advantage over some of its neighbors.
The state is prudent with its new tax plan. By gradually reducing tax rates over time using revenue triggers, the state ensures that unexpected budget shortfalls will not create a fiscal crisis for Mississippi.
Policymakers should be further incentivized to limit spending to implement the tax reform even faster. While lower taxes create future economic growth, the tax cuts will not pay for themselves immediately as businesses take time to complete investments and expand production facilities and services.
No one likes paying taxes. April 15th is a time of dread for most taxpayers. But this April, Mississippians have a reason to cheer because of the state legislature’s actions and Gov. Tate Reeves. Mississippi is poised to become one of the top ten states for income tax policy and can look forward to more jobs and economic prosperity for generations.
