With Governor Reeves’ signature, Mississippi now on track to end the tax on work

• The legislation is the most significant tax reform ever passed in the Magnolia State.

Governor Tate Reeves (R) signed the most significant tax reform legislation in state history into law Thursday evening at the Governor’s Mansion, setting Mississippi firmly on a path towards ending its tax on work.

“House Bill 1 is now law,” declared Reeves after signing the bill.

Flanked by House and Senate Republicans, Governor Reeves said the law will impact all Mississippians, adding that no work, earnings, or labor will be taxed when the bill takes full effect.

“This is generational change,” Reeves said, noting it was a long time coming, adding, “The legislation I’m signing today puts us in a rare class of elite, competitive states. There are only a handful of states in the country that do not tax income. Today, Mississippi joins their ranks – and in doing so, we plant our flag.”

In concert with the 2022 income tax reform, the new law will usher in the following changes:

• The flat income tax rate in the state will drop from 4.4 percent this year to 3 percent in 2030 (an annualized cut of $647 million)
• Additional cuts to the income tax rate down to 0 percent will occur beginning in 2031 based on the state meeting revenue growth triggers
• The sales tax applied to grocery purchases drops from 7 percent to 5 percent on July 1, 2025 (an annualized cut of $127 million)
• Approximately $200 million in additional revenue for roads and bridges will be produced through a 9-cent increase in the fuel excise tax over a 3-year phase-in period
• A Tier 5 in the Public Employees Retirement System (PERS) for newly hired government workers is created based on recommendations from the PERS Board (does not impact existing workers or retirees).

Mississippi has experienced substantial revenue and spending growth in recent years. Since 2016, the state’s tax collections increased by 39 percent, even as multiple tax cuts took effect. Since 2019, state general fund spending increased from $5.7 billion to nearly $7.1 billion this fiscal year.

The version of the bill that landed on the Governor’s desk is not without detractors. Some question whether the state can afford the proposed cuts, while others point out the bill passed included errors related to the growth triggers. As passed, the triggers for additional cuts starting in 2031 would be near automatic with even a slight surplus.

Speaker Jason White (R) said Tuesday that additional discussions are ongoing to address the triggers contained in HB 1. The two chambers are holding conference meetings related to SB 3095, a measure that now includes House’s most recent tax reform language. Contained in the House proposal is $100 million in additional annual funding for PERS, but also a sales tax of one cent intended to accelerate the elimination of the income tax.

READ MORE: Speaker White says discussions ongoing between House, Senate related to tax reform legislation

Various organizations have spoken out against the new Tier 5 for PERS, which includes a reduction in benefits for new government employees. Some education lobbyists and the Mississippi Association of Chiefs of Police claim the changes will hurt in recruiting new employees.

Other special interest groups contend that while the new Tier 5 is a step in the right direction, more must be done to address the system’s more than $25 billion in unfunded liabilities.

While HB 1 passed with bipartisan support in the House, some Democrats have issued warnings about its potential. House Minority Leader Robert Johnson called the push to eliminate the income tax “dangerous,” and warned that it could lead to reduced funding for schools, transportation, and health care services.

The Legislature has passed approximately $800 million in new annual funding for K-12 education in the last four years, including the largest teacher pay raise in state history and a completely reworked public education funding formula.

Despite the contention between the two Republican majority chambers in negotiating this historic legislation, most Republican state and legislative leaders have praised the measure.

Lt Governor Delbert Hosemann (R) praised the bill, saying the new law “brings positive and lasting change to Mississippi,” before describing it as “one big, beautiful bill.”

Hosemann told the press gathered for the signing, “He who hasn’t had a typo, cast the first stone,” joking that he has directed Senate bill writers to stop using periods.