Mississippi governor signs typo tax overhaul bill into law to phase out income tax
Gov. Tate Reeves signed a bill to overhaul Mississippi’s tax system — one that many lawmakers inadvertently voted for because of typos — into law on Thursday.
This sets Mississippi on a path to become the first state to eliminate an existing income tax, when the tax is phased out in about 14 years.
Reeves said the law marks a turning point in the state’s history and that it would make Mississippi a magnet for corporate investment and workers from other states.
“Today is a day that will be remembered not just for the headlines, not just for the politics, but for the profound generational change it represents,” Reeves said at a bill signing ceremony in front of the Governor’s Mansion. “I must say, it feels like it’s been a long time coming, but after many, many, many years of hard work, we can all stand together and say that we have accomplished income tax elimination in the state of Mississippi.”
Mississippi is currently reducing its income tax rate to 4% from a previously passed tax cut being phased in. Beginning in 2027, the new law will reduce that rate by .25% over four years until it reaches 3%. In 2031, the tax will only be reduced if certain revenue “growth triggers” are met.
The law also reduces the sales tax on groceries from 7% to 5%, raises the gasoline tax from 18.4 cents a gallon to 27.4 cents a gallon over three years to fund infrastructure and changes the contribution model of the public employee retirement system.
House leaders have long pushed to eliminate the state personal income tax in relatively short order. The Senate had urged a longer-term approach, arguing it would be unwise to slash a third of the state’s revenue in uncertain economic times. Senators last week had conceded to eliminate the income tax, but only with economic growth “triggers” as safeguards — the tax wouldn’t phase out unless the state saw robust economic growth and controlled spending. It would have likely taken many years.
Or so they thought. The Senate bill had typos that essentially nullified the growth triggers and would eliminate the income tax nearly as quickly as the House proposed. The House passed the flawed bill on to the governor, who signed it into law Thursday.
In a social media post last week, Reeves, who did not mention the bizarre series of events that helped send the bill to his desk, said “liberal activists” were “making claims of errors, omissions, mistakes, and changes.” Since then, both House Speaker Jason White and Lt. Gov Delbert Hosemann, both Republicans, have acknowledged the legislation signed into law Thursday contained errors.
Hosemann downplayed the typos at the ceremony.
“Some of y’all are focused on a typo in the bill, and I’d use the biblical analogy, let he who has not had a typo cast the first stone.”
Reeves said the tax overhaul will lead to economic dynamism and attract new residents to Mississippi, but local officials and experts remain divided on whether eliminating the tax will actually benefit the state’s economy and whether citizens will reap many of the benefits that politicians claim they will.
Neva Butkus, a senior analyst at the Institute on Taxation and Economic Policy, said her projections show that once Mississippi abolishes its income tax, it will likely result in a $2.6 billion reduction to the current $7 billion general fund budget, revenue that the poorest state in the nation could use to provide core government services.
“What the state is essentially committing to is a very extreme and dramatic loss of revenue during a very tumultuous time during which the state might be reckoning with large federal cuts to social programs that many Mississippians rely on,” Butkus said. “And they’re doing all of this while creating a windfall for the state’s wealthiest residents in the poorest state in the union.”
Mississippi’s decision to eliminate the tax without raising another tax to offset the general fund loss comes as President Donald Trump’s administration and the GOP-controlled Congress are considering sweeping budget cuts and freezing federal grants that fund many state services.
Mississippi’s economy and budget are among the most reliant on federal spending in the nation. If the federal government significantly slashes any federal programs, the impact will almost certainly trickle down to the state level.
The ITEP’s data shows that Mississippians who make less than $19,300 a year, the poorest of the poor, already spend around 12.4% of their income on taxes. In comparison, Mississippians who make over $362,000 annually only contribute 6.9% of their income to taxes.
Once the tax cuts take full effect, Butkus said that disparity is expected to widen even more, especially since the new law will raise the gasoline tax by 9 cents a gallon to fund road and bridge infrastructure.
“When you’re replacing progressive income taxes with regressive revenue, that becomes a problem,” Butkus said.
Conversely, Joe Bishop-Henchman, the executive vice president of the National Taxpayers Union Foundation, believes the law’s growth triggers — even with the errant decimal point typos defanging them — mean the state can responsibly eliminate the tax without decimating its budget.
Bishop-Henchman has previously testified before the state Legislature about tax policy and said it would be ideal for lawmakers to correct the typos in the trigger language, but having some type of guardrails in place is something multiple states have enacted.
“A value of triggers is that it still leaves room for budget growth,” Bishop-Henchman said.
Mississippi Today spoke to mayors around the state, who were also divided on some elements of the overhaul.
Shari Veazey, executive director of the Mississippi Municipal League, a lobbying organization that represents cities and towns, said the entity did not oppose the bill signed by Reeves because it diverts more state money from the sale tax on groceries to localities, even though the overall sales tax rate on groceries was reduced.
“The number one priority was just making sure there was no loss of revenue when they reduced the grocery sales tax,” Veazey said. “And we don’t believe there will be.”
Veazey said the impact on municipalities of shrinking the state general fund budget remains to be seen.
Starkville Mayor Lynn Spruill said she had been assured by the area’s state legislators that city budgets would be kept afloat.
“The proof will be in the numbers we receive when it goes into effect,” Spruill said. “I’m relying on our legislators being accurate.”
She said cuts to the general fund might not have a big impact on her city’s ability to function, but individual taxpayers might have cause for concern.
“I would worry about it as a resident who pays taxes, as to what that will do to the basic services the state provides,” Spruill added. “But as it relates to a direct appropriation to the city, that’s not something I’m particularly concerned about.”
The gas tax increase could cause some financial hardship, Spruill said. But Starkville, home to Mississippi State University, has better public transportation than most cities in the state.
But in a place such as Greenville, located in the rural, poverty-stricken Mississippi Delta, some worry a slashed general fund alongside gas tax increases could make it more expensive to drive and weaken local government’s ability to provide basic services.
“The trickle-down negative effects of this tax overhaul will not actually trickle down—it will be a huge take-away from this rural community,” said Greenville Mayor Errick Simmons. “When local governments lose the ability to fund police, fire, and other essential services, the safety and well-being of our residents are put at risk.”
In Greenwood, located at the eastern edge of the Delta, Mayor Carolyn McAdams, said she was concerned that the law’s increased grocery sales tax diversion might not be enough to make up for revenue small towns might lose.
“The people in these small towns like Itta Bena, Sidon, Schlater only have these convenience stores and they don’t even have grocery stores. What is that going to do to these small towns?” McAdams said. “I have to trust that they’re going to take all of that into consideration and not do anything that would be harmful to the cities and towns that make up Mississippi.”
Reeves said the benefits would outweigh the costs: “We are saying to entrepreneurs, to workers, to dreamers: Mississippi is open for business, and we will not penalize your success. We are going to compete and we are going to win.”
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This story was originally published by Mississippi Today and distributed through a partnership with The Associated Press.