Mississippi's governor declared victory on the elimination of the state's income tax by signing a bill that could, if everything goes exactly as it's supposed to, phase the tax out of existence long after he is term-limited from office in 2028.
House Bill 1 cuts the individual income tax rate to 3% by calendar year 2030, with triggers that may drive future annual decreases until it ultimately falls to zero, according
"I have made this my mission," the Republican governor said in his release. "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."
His legislation also ensures that working people will still pay taxes on the one thing in life they can't avoid buying — groceries — though the legislation slightly lowers the tax on these sales to 5% from 7%.
Only 10 states levy a sales tax on groceries,
The bill also increases the fuel tax in Mississippi and creates a new hybrid defined benefit/defined contribution retirement tier for newly hired public employees.
The tax bill is more likely to impact Mississippi's credit quality than its performance, Municipal Market Analytics wrote in its weekly outlook Monday.
But investors with a material exposure to Mississippi bonds "should consider steering related reinvestment into better, larger names," MMA wrote.
S&P Global Ratings most recently affirmed Mississippi's AA general obligation bond rating in October, keeping a negative outlook.
The rating "reflects Mississippi's responsive management practices that have historically aided structurally balanced budget performance and maintenance of strong reserve balances," said S&P analyst Rob Marker.
S&P
"The outlook revision reflects our view of elevated credit risks stemming partly from persistently weak economic and demographic trends, which could result in an increasingly challenging budget environment as the state manages through its phased-in income tax reductions," Marker said.
Reeves signed House Bill 531, which provided the previous tax-cut, into law in 2022.
That bill replaced graduated rates with a flat tax that decreases to 4% from 5% in calendar year 2026, according to
The new bill continues cutting the tax rate by a quarter percent a year until it hits 3% in 2030.
How does that bring the income tax to zero?
But supporters of the bill crowed that a decimal point misplaced while the bill was in the state Senate's hands makes the income tax's demise a near certainty.
"Something the Senate designed as a brake on tax cuts turned out to be an accelerator," the anti-income tax Mississippi Center for Public Policy
"A decimal error in the bill, which has been acknowledged by the legislative leadership and the governor, will phase out the income tax at a much faster rate than the Senate intended and may very well have harmful consequences for our state's economy," the Mississippi Professional Educators organization
The Associated Press called it a "
Senate Bill 3095, a bill SPE described as a vehicle to correct the typo, has died, according to the
Republicans dominate the state legislature. The final version of the bill cleared the House 92-27, with the only "no" votes coming from Democrats, after clearing the Senate 32-16 with some members of both parties crossing the aisle.
"HB 1 is a reckless and disastrous piece of legislation that will have devastating effects on Mississippians" the House Democratic caucus said in a statement posted on the X social media site, formerly Twitter.
Moody's rates Mississippi Aa2 with a stable outlook.
Fitch Ratings affirmed Mississippi at AA and stable in October, anticipating "liability levels will remain moderately low, albeit above average for a U.S. state, while economic growth will likely be below average."
The state is embarking on a long-term revenue cutting program at an uncertain time.
"Amid substantial long-term funding challenges from both climate change and federal spending/policy retrenchment, states should be aiming to increase current revenues, not reduce them," MMA wrote this week.
Signs of weakness were showing in state revenue collections across the country in January, according to the most recent report published by the Urban Institute.
"The median state saw a decline of 1.5 percent inflation-adjusted total tax revenue collections," said the report, authored by Lucy Dadayan. "Preliminary data indicate that 31 out of 46 reporting states experienced year-over-year decline in total state tax revenue collections in real terms. These numbers highlight the uneven economic landscape states are navigating."
The long-term state tax revenue outlook "remains uncertain," the report said, particularly due to the
Earlier this week
The same BEA release ranked Mississippi dead-last among the 50 states in per capita personal income.
It was second-worst for percentage of population living in poverty in 2023, according to U.S. Census data, with only Louisiana worse among the 50 states.
