Revisiting Mississippi’s Recent Tax Reforms

Columnist Trey Dellinger says Mississippi’s leaders have made great strides in bringing tax relief. With healthy revenues continuing to deliver historic surpluses, further tax relief should be on the menu this term.

Mississippi policymakers clearly have further tax reforms on their minds as they begin their new four-year terms. Before those discussions kick off in earnest, it’s a good time to note why tax policy gets such emphasis and to recap recent Mississippi tax reforms.

Tax policy is more than a dry subject of interest only to numbers nerds. Good tax policy helps create an efficient economy but is about much more than efficiency. It influences how much opportunity there is and who gets it. It has broad moral and social implications. Indeed, it goes to the heart of the American Dream. 

At its root lies the quintessentially American belief that people should keep the fruit of their labor. True, effective government requires taxes, but Americans traditionally regard taxes as an infringement on their right to keep what they earn – a kind of necessary evil. Jefferson expressed this sentiment, saying a “wise and frugal government…shall restrain men from injuring one another…and shall not take from the mouth of labor the bread it has earned.”

Another strain of American thought sees a role for government in creating the transportation, financial and education infrastructure that fosters opportunity. Lincoln believed government’s purpose was to secure the right to rise. He advocated “maintaining in the world that form and substance of government whose leading object is to elevate the condition of men; to lift artificial weights from all shoulders; to clear the paths of laudable pursuit for all; to afford all an unfettered start and a fair chance in the race of life.”

Conscientious American leaders seek to fund the public investments necessary to foster opportunity without creating an opportunity-strangling tax burden in the process. Detracting from both goals are expanding entitlements, wasteful pork-barrel projects and special-interest boondoggles. 

All this will be on the minds of Mississippi leaders as they reflect on the tax reforms that brought us to this point and consider next steps. 

Recent tax reforms began with the S.B. 2858 Mississippi Taxpayer Pay Raise Act of 2016 (Sen. Joey Filingane, Principal Author). It took a two-pronged approach that has typified this generation of Mississippi tax reforms. First, give broad-based tax relief for workers so they can keep more of what they earn. Second, cut business taxes and top marginal income tax rates to stimulate job creation.

Before the most recent tax reforms, Mississippi had a corporate franchise tax at the rate of $2.50 per $1,000 of taxable capital. It had three income tax brackets that applied to both individual and business income. The 3% bracket applied to taxable income, after deductions and personal exemptions, up to the first $5,000 earned. The 4% bracket applied to taxable income between $5,000 and $10,000. The 5% bracket applied to taxable income over $10,000.

The 2016 reform provided broad tax relief to workers by phasing in an elimination of the 3% income tax bracket. The 3% tax bracket was fully phased out by tax year 2022, yielding tax relief for individuals of approximately $50 million per year.

The 2016 law stimulated job creation by exempting the first $100,000 of a corporation’s capital from the corporate franchise tax, then phased out the remainder by 2028. The 2016 reform also allowed self-employed businesspeople to deduct up to 50% of their self-employment taxes from their state income tax. These reforms yielded about $35 million per year of business tax relief.

The 2022 H.B. 531 Mississippi Tax Freedom Act (Rep. Philip Gunn, Principal Author) provided much larger tax relief. The 2022 reform advanced both goals of stimulating job creation and providing broad-based tax relief to workers. For 2023 forward it eliminated the 4% tax bracket on individual income. By 2023 single filers could earn their first $18,300 and married filers their first $36,600 before paying any income tax. These reforms meant that by 2023 Mississippi allowed individuals to earn more income before paying tax than any other state with an income tax. 

Finally, the 2022 act cut the top 5% marginal income tax rate on individual income to 4.7% for 2024, 4.3% for 2025 and to a flat 4.0% rate by 2026. The 2022 act further expressed the intent of the legislature to examine, before tax year 2026, further reductions and the eventual repeal of the individual income tax.

The 2022 act was estimated to provide individual income tax relief of approximately $575 million per year at full phase-in. 

Finally came 2023 H.B. 1733 (Rep. Trey Lamar, Principal Author). That law allowed a series of business-friendly tax reforms. It allowed research and experimental (R&E) expensing and 100% bonus depreciation. It also codified prior Mississippi Department of Revenue guidance allowing Internal Revenue Code Section 179 property expensing for tax years beginning in 2023 and thereafter.

Mississippi’s leaders have made great strides in bringing tax relief. With healthy revenues continuing to deliver historic surpluses, further tax relief should be on the menu this term.