Mississippi’s individual income tax could phase out entirely by 2040 under a plan passed by legislators and signed into law by Governor Tate Reeves (R) on March 27. Mississippi would then become the 10th U.S. state with no individual income tax, joining neighboring Tennessee and nearby Florida and Texas. Much of the reductions, however, will only be triggered if the state sees large revenue growth or spending constraints.
Mississippi has had an income tax since 1912. From 1983 to 2017, Mississippi had a three-bracket income tax where the “top rate” applied to essentially all income: 3% on income over $0, 4% on income over $5,000, and 5% on income over $10,000. In 2018, the state began phasing out the lowest 3% bracket over five years. This was accomplished by 2022, and legislation adopted that year also eliminated the 4% bracket to result in a flat 5% tax on income over $10,000 in 2023. That flat rate was scheduled to drop to 4.7% in 2024, 4.4% in 2025, and 4.0% in 2026.
Mississippi currently raises $1.9 billion from the income tax. But this makes up just 18% of total tax collections, the fourth lowest dependency on the income tax of any state with an income tax (above only North Dakota, New Mexico, and Louisiana). Governor Reeves had proposed immediately reducing the income tax to 3% in 2026, 2% in 2027, 1% in 2028, and zero in 2029.
Mississippi Income Tax Rates and Brackets, 2017–2030 Under Enacted Law
Year | Income Tax Rate and Brackets |
2017 | 3% > $0 4% > $5,000 5% > $10,000 |
2018 | The first $1,000 is exempt. 3% > $1,000 4% > $5,000 5% > $10,000 |
2019 | The first $2,000 is exempt. 3% > $2,000 4% > $5,000 5% > $10,000 |
2020 | The first $3,000 is exempt. 3% > $3,000 4% > $5,000 5% > $10,000 |
2021 | The first $4,000 is exempt. 3% > $4,000 4% > $5,000 5% > $10,000 |
2022 | The first $5,000 is exempt. 4% > $5,000 5% > $10,000 |
2023 | The first $10,000 is exempt. 5% > $10,000 |
2024 | The first $10,000 is exempt. 4.7% > $10,000 |
2025 | The first $10,000 is exempt. 4.4% > $10,000 |
2026 | The first $10,000 is exempt. 4% > $10,000 |
2027 | The first $10,000 is exempt. 3.75% > $10,000 |
2028 | The first $10,000 is exempt. 3.5% > $10,000 |
2029 | The first $10,000 is exempt. 3.25% > $10,000 |
2030 | The first $10,000 is exempt. 3% > $10,000 |
2031 and after | The first $10,000 is exempt. Depending on the trigger, rate could be reduced each year between 0% and 0.3%. |
The new law, the Build-Up Mississippi Act, will cut the flat income tax rate by 0.25 percentage points per year from 2027 to 2030, when it will stand at 3%. For each following year, tax cuts will be conditional: triggered only if projected state government spending is less than prior year’s actual revenue collections by at least 0.85% of the amount of a full percentage point rate cut (approximately $500 million). If the calculated amount is at least 0.85%, it will trigger a 0.2 percentage point income tax reduction; if it is at least 1%, it will trigger a 0.25 percentage point income tax reduction; if it is at least 1.15%, it will trigger a 0.3 percentage point rate reduction.
For example, if 2030 actual tax collections exceed 2031 projected spending by approximately $4 million (0.85% of $500 million), then the tax rate will drop from 3% to 2.8%. If the excess is $5 million, then the tax rate will drop from 3% to 2.75%. If the excess is $6 million, then the tax rate will drop from 3% to 2.7%. Rates will continue unless reductions are triggered in subsequent years. If actual tax collections are exceeded by the following year’s spending projection, no tax cuts are triggered.
The actual amount of the trigger may be the result of a typo, using 0.85% instead of 85%. Using those numbers, 2030 tax collections would have to exceed 2031 projected spending by $400 million, not $4 million, to trigger the $100 million cut to 2.8%. The Senate was unaware of the typo, while the Mississippi House, desiring a speedier income tax elimination, may have been aware of it and acted quickly to pass the bill before it was corrected. The first year the trigger could be used is 2030, so legislators have time to correct it and they should.
Even if the typo is not corrected, however, a review of the past decade of information shows that the trigger would not automatically occur unless revenue growth or state spending constraint is extraordinary. Since 2016 in Mississippi, actual prior year tax collections have exceeded the spending projection in 6 out of 11 years, all but one (2019) during the recent run-up in state revenues that has seen 27 states significantly cut taxes and 6 states move to flat income taxes. Today half the states have either no income tax (9 states) or a flat income tax (14 states). Since 2019, even as they phased out two income tax brackets and cut the top rate, Mississippi tax revenue has grown at 5.4% per year, faster than spending growth of 4.2% per year. If the trigger formula is corrected, rate reductions would have been triggered in 2 out of 11 years (2024 and 2025), in both cases enough to trigger the full 0.3 percentage point reduction. Notably, it would not have been triggered in the most recent FY 2026 because actual FY 2025 collections ($7.596 million) were exceeded by projected FY 2026 spending ($7.699 billion).
Would Mississippi Tax Cuts Have Been Triggered In Past Budget Years?
Fiscal Year | Actual Revenue, | Spending Projection | Difference | Trigger Met? *only under current law if typo is not corrected | If yes, what percent of $500 million |
$5.466 billion | $5.519 billion | −$53 million | No | ||
$5.596 billion | $5.674 billion | −$78 million | No | ||
$5.560 billion | $5.776 billion | −$216 million | No | ||
$5.601 billion | $5.483 billion | +$118 million | Yes* | 24%: full 0.3% cut but none if typo corrected | |
$5.655 billion | $5.686 billion | −$31 million | No | ||
$5.935 billion | $5.740 billion | +$195 million | Yes* | 39%: full 0.3% cut but none if typo corrected | |
$5.691 billion | $5.603 billion | +$88 million | Yes* | 18%: full 0.3% cut but none if typo corrected | |
$5.926 billion | $5.824 billion | +$102 million | Yes* | 20%: full 0.3% cut but none if typo corrected | |
$6.985 billion | $6.351 billion | +$634 million | Yes | 127%: full 0.3% cut | |
2025 | +$671 million | Yes | 134%: full 0.3% cut | ||
$7.596 billion | $7.699 billion | −$103 million | No |
Mississippi joins many other states that have increasingly used tax cut triggers to achieve tax cuts while being cautious about their revenue impacts. West Virginia in 2008 conditioned reductions in its business income tax on their rainy day fund exceeding 10% of general fund revenue, achieving the reductions by 2014. In 2013, North Carolina’s comprehensive tax reform broadened the tax base and cut rates, but conditioned future rate reductions on revenue growth. North Carolina legislators also restrained spending growth as an implicit goal to achieve their tax reductions, but Mississippi may be the first state to make its trigger dependent on both revenue growth and spending restraint. In 2014, the District of Columbia conditioned 26 different individual and business tax cuts on future tax revenue growth as part of a comprehensive tax reform, which eventually led to all the D.C. tax cuts being implemented by 2018. As my former colleagues at the Tax Foundation note, “well-designed triggers require selecting a baseline revenue figure and then establishing benchmarks that reflect meaningful revenue growth.” Arizona, Colorado, Iowa, Kansas, Kentucky, Massachusetts, Michigan, Missouri, New Hampshire, Oklahoma, Oregon, and Virginia have also used triggers.
The Mississippi bill also makes some other tax changes. The second-lowest-in-the-nation gasoline tax of 18.4 cents per gallon will go up 9 cents over three years and then by inflation up to 1 cent per year afterward; this is projected to increase revenue by $250 million to $300 million a year. The bill also reduces the sales tax on groceries from 7% to 5%, effective July 1, 2025.
In sum, while 2040 is the earliest year that Mississippi could join the states with no individual income tax, that projection would depend on revenue growth or budget constraint being even stronger than it has been in the past decade. Otherwise, the phaseout will take many years longer. If revenue begins falling each year due to the scheduled tax cuts but spending remains constant, a structural budget gap will open up that will defer the post-2030 tax reductions. To be prudent, Mississippi policymakers should correct the percentage point in the trigger calculation and monitor its performance each year to see if further changes should be made.
Governor Reeves says the benefits of income tax elimination will 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.” No state has gone from a full income tax to none since Alaska in 1980, so he is correct that it would be a noticeable achievement for the Magnolia State.