Why did Mississippi lawmakers pass its largest state income tax cut?

Mississippi lawmakers passed the largest-ever state income tax cut on Sunday to spur economic growth and make the state “work friendly.” Opponents say the cuts will benefit the wealthy the most and could lead to significant budget shortfalls.

First Look

Mississippi, one of the poorest states in the nation with perpetually underfunded schools and struggling rural hospitals, had its largest-ever tax cut passed by lawmakers Sunday.

The Republican-controlled state House and Senate voted by wide margins to pass a bill that would reduce the state income tax over four years, beginning in 2023. The bill goes to Republican Gov. Tate Reeves. He has indicated he will sign it into law.

“This affects every Mississippian that gets up and goes to work,” Senate Finance Committee Chairman Josh Harkins, a Republican from Flowood, said Sunday.

Supporters say a significant tax cut could spur economic growth and attract new residents to Mississippi, which was one of three states that lost population during the decade before the 2020 Census.

“This tax cut will make Mississippi one of the most work-friendly states in the nation,” said Republican House Speaker Philip Gunn.

Opponents say reducing the income tax would mean less money for schools, health care, roads, and other services, especially hurting Mississippi’s poor and working-class residents.

Sen. David Jordan, a Democrat from Greenwood, said he is concerned legislators won’t be able to pay for expected government services if the state cuts taxes.

“I don’t want all of us hanged in effigy,” Senator Jordan said.

The Mississippi income tax accounts for 34% of state revenue. Wealthy people would see the biggest financial boost from eliminating the income tax, because they’re the ones paying the most now. The poorest residents would see no benefit because they are already earning too little to pay state income tax.

Starting next year, the 4% income tax bracket would be eliminated. The following three years, the 5% bracket would be reduced to 4%.

After the first year, the tax-free income levels would be $18,300 for a single person and $36,600 for a married couple, lawmakers said.

Mr. Harkins said the tax cut would reduce state revenue by $185 million the first year. By the final year, the figure would be $525 million. The state-funded portion of the budget is nearly $7 billion.

Mississippi has enjoyed robust tax collections the past several months, partly because of increased federal spending during the COVID-19 pandemic. But the state also faces expensive budget items, including a long-running court case that requires improvements to the mental health system. Legislators have rarely put all the required money into a school funding formula that has been in law since the late 1990s. The state’s corrections system came under federal investigation after riots in late 2019 and early 2020 focused attention on shoddy living conditions in prisons.

Nine states don’t have an income tax and one more, New Hampshire, only taxes interest and dividends, according to the National Conference of State Legislatures. Opponents of reducing the Mississippi income tax point to Republican-led Kansas, which enacted big tax cuts in 2012 and 2013 but repealed many of them in 2017 after large and persistent budget shortfalls.

Under current laws, a single person with no dependents in Mississippi currently pays no tax on the first $12,300 of income. Because of tax cuts approved years ago, the tax-free amount will increase to $13,300 after this year. The state has a 4% tax on the next $5,000 of income and a 5% tax on all income above that.

This story was reported by The Associated Press.