Mississippi could become the nation’s 10th state to eliminate its personal income tax, with Republican Gov. Tate Reeves and House Speaker Philip Gunn (R-Clinton) backing differing plans to do away with the levy when lawmakers convene their 2023 session on Jan. 3.
Similar 2023 proposals to erase immediately, or phase-out, state income taxes are also expected to be filed in West Virginia, Arkansas, Iowa, Georgia, North Dakota, Utah, and, perhaps, Wisconsin.
Such measures are not unusual in state houses but are usually symbolic bills lodged by fiscal conservatives who argue taxing individual incomes to fund state—and in some cases, local— governments is counter-productive, especially with an array of alternate assessments available to replace “lost” revenues generated by personal income taxes.
But as legislatures enter their third sessions since the 2020 pandemic pumped trillions in federal recovery and stimulus assistance into state and local government coffers, and with tax revenues rebounding far faster than anticipated, many state budgets are touting temporary surpluses.
Some governors and lawmakers say these surpluses should be funneled back to taxpayers. During 2022 sessions, Washington, D.C.-based Tax Foundation reports more than half the states approved personal tax rebates, 38 trimmed assorted taxes, and at least 11 debated phasing out personal income levies altogether.
As state leaders assemble 2023 budget projections, the same issues are on the front burner, with revenue surpluses prodding lawmakers to push for another round of tax cuts despite acknowledging the largesse is temporary and amid calls for prudence in the face of a potential recession, that some economists say the nation is already experiencing.
Nine states right now don’t assess personal income taxes—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—with Mississippi the most likely to join their ranks in 2023.
In 2022, Mississippi lawmakers adopted the largest tax cut in state history, a phased $525 million cut beginning this year before implementing a flat 4-percent income tax by 2026.
In doing so, Mississippi became the 10th state to adopt a flat tax, meaning the same tax rate is assessed for all earners regardless of income. Flat tax proposals are also a trend in state legislatures.
Mississippi lawmakers will have $3.9 billion in surplus “unencumbered money” when they convene their 2023 session, with about a third of that emanating from recurring tax revenues.
Gov. Reeves has vowed to lobby for the full elimination of the state’s income tax in the coming year, telling the Mississippi Economic Council in October that the state is in the best fiscal and financial shape in its history, collecting billions in “excess revenue” that would allow it to eliminate the income tax without cutting expenditures.
Lawmakers have discussed eliminating the income tax during their last two sessions but, in 2022, settled on the phased $525 million cut over the next four years.
Reeves objective is supported by House Speaker Gunn, who does not want tax rebates—as many lawmakers advocate—but “permanent, long-term tax relief.”
While Reeves and Gunn share the same goal, their proposed paths in replacing “lost” income tax revenues vary and are opposed by Republican Lt. Gov. Delbert Hosemann and GOP Senate leaders, who prefer giving taxpayers one-time rebates from the surplus.
How these proposals play out will be among the top issues debated between January and April in Jackson. Other states will also deliberate similar initiatives.
