Mississippi to Abolish Its Individual Income Tax

MISSISSIPPI TO ABOLISH ITS INDIVIDUAL INCOME TAX

Will That Start the Dominos Falling?

Mississippi Governor Tate Reeves knocked over the first in what I hope to be a long string of legal dominos. He signed House Bill 1, known as the “Build Up Mississippi Act,” which lowers the state’s sales tax and phases out the state’s individual income tax over time. This will make Mississippi the first state in 45 years to abolish its personal income tax law. The last was Alaska in 1980.

In a bill-signing ceremony on March 27, Gov. Reeves said:

I am proud to sign into law a complete elimination of the individual income tax in the state of Mississippi. Let me say that again: Mississippi will no longer tax the work, the earnings, or the ambition of its people. The legislation I’m signing today puts us in a rare class of elite, competitive states. There are only a handful of states in the country that do not tax income. Today, Mississippi joins their ranks – and in doing so, we plant our flag. 

Indeed, only eight states currently assess no personal income tax. They are Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming. Washington State has no income tax on wages and salaries but does tax certain capital gains income over $270,000. It appears that Kentucky is also on the path to abolishing its state income tax as well.

Mississippi’s move to axe income taxes follows its 2022 act of refunding to taxpayers a half-billion dollar surplus the state was sitting on. At the time, it was the biggest tax cut in Mississippi history.

In signing the bill, Gov. Reeves added,

This is more than a policy victory. This is a transformation. And it’s a transformation that I have believed in, fought for, and worked toward for many years. From my days as lieutenant governor to my first campaign for this office – and every legislative session since – I have made this my mission. Because I believe in a simple idea: that government should take less so that you can keep more. That our people should be rewarded for hard work, not punished. And that Mississippi has the potential to be a magnet for opportunity, for investment, for talent – and for families looking to build a better life.

The work of your hands belongs to you. It is yours – to feed your family and invest in your home and your community. Because that’s what this is ultimately about. Not just numbers on a balance sheet, but lives. Generations from now, when our kids are raising families of their own in a stronger, more prosperous Mississippi, they will look back on this moment and say: this is when we took our shot. To the people of Mississippi: you are the real winners today.

 How it Works

 The good news is that House Bill 1 clearly sets the table for the elimination of the personal income tax. The bad news is that it’s a long-term phase-out. There are two ways to approach a change of this magnitude. The first way is to phaseout the existing system over time. The second way is to flip the switch just as one turns out a light. While the latter raises administrative issues related to moving from one tax system to another abruptly, the former carries the very real possibility that as time marches on, future legislators and governors might see fit to slow or even eliminate the phase-out process. That only serves to unravel all the work put in to abolish the system in the first place.

Mississippi’s system is not just a phase-out process, but a long-term phase-out process. Under the law, the personal income rate will drop from 4% to 3% by 2030. Thereafter, there will be annual reductions of 0.2% to 0.3%, contingent upon economic factors. That is to say, in order for the reductions to kick-in, the state’s economy must achieve certain stated growth goals. The idea is to fully eliminate the income tax by 2037.

But a lot can change in twelve years, not the least of which is the political makeup of the state legislature and the philosophy of the person holding the Office of Governor.

Reducing Sales Taxes

As do most states, Mississippi has a general sales tax, currently assessed at the rate of 7%. The bill reduces the sales tax assessment on groceries from the current 7% rate to, initially, 5% effective July 1, 2025, and then to 2.5% by 2036, about the time the lights will go out on the personal income tax.

Between the income tax phase-out and the reduction in sales taxes, about $2.2 billion will be cut from state coffers.

Increase in the Gas Tax

The new law raises the gas tax by 3 cents a gallon annually for three years. This is said to provide revenue for infrastructure projects.

 Setting an Example

After my book How to Fire the IRS was released in 1993, I became very active in the debate over radical tax reform and the move to abolish the IRS and the federal income tax. By about 2000, I was very frustrated with what I came to see as Congress’ lack of any real desire to change the system. Federal legislators like the complicated income tax system for many reasons, not the least of which is fact that income tax laws give Congress the power to pick winners and losers in the market place.

I became convinced that the only way to abolish the federal income tax is if the various states first abolish their own income taxes in favor of broad-based consumption taxes. To that end, I published my analysis of the Minnesota income tax system in 2000 called Freedom to Prosper, which laid out the plan to move my home state away from its personal and corporate income tax system to consumption taxes as the principal means of funding state government. I presented the plan to the Minnesota House Republican caucus, pitched the idea to then-Governor Tim Pawlenty, and testified before various legislative committees on the plan. But alas, Minnesota is second only to California in its leftist ideas, so my plan never got legs.

But that doesn’t mean the broader idea is not attractive. My treatise, Ten Principals of Federal Tax Policy (Heartland Institute, 2004), was distributed to more than 10,0000 state legislators, policy wonks and citizen-activists. That led to movements in places like Nebraska, Georgia, Missouri and Iowa, where major tax-cut and reform legislation is being discussed. Mississippi and now Kentucky are moving ahead to make history.

That just might start the dominos falling, which could eventually lead to the United States Congress coming to its senses and abolishing the most destructive and invasive tax system ever introduced into a free society—the graduated personal income tax.

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MISSISSIPPI TO ABOLISH ITS INDIVIDUAL INCOME TAX
Will That Start the Dominos Falling?

DEALING WITH PASSPORT REVOCATIONS
Legal and Administrative Guidelines

THE BATTLE OVER EMPLOYEE RETENTION CREDITS CONTINUES
Courts Consider Challenges to IRS Ruling-making
by Scott MacPherson, Attorney at Law

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