By some measurements, Mississippi is one of the poorest states in the nation. It's not that there isn't wealth in the state; Mississippi is a major agricultural state, holding the number one spot in the nation for catfish production and ranking among the top 25 producers of 14 other agricultural commodities.
Significantly, Mississippi ranked in the top 10 in manufacturing. So why is it ranked near the bottom in per capita income and other measurements of wealth?
The state has limited economic diversification. There's an over-reliance on agriculture and traditional industries, and there's a lack of big cities that would attract hi-tech businesses and high-paying jobs. Also, Mississippi’s workforce is among the nation’s least educated, with the lowest concentration of technology workers. It is also the least productive by several indices.
However, Mississippi is also one of the least taxed states in the nation. Gov. Tate Reeves and the Republican legislature want to go one step further, and last month, they passed a bill, the "Build Up Mississippi Act." The new law will phase out the state's income tax by reducing it from the current 4.4% to 3% by 2030 and eventually phase it out to zero after "growth triggers" linked to state revenue are realized.
"I believe in a simple idea," Gov. Reeves said when signing the legislation, "that government should take less so that you can keep more."
The Build Up Mississippi Act also cuts the tax on groceries from 7% to 5%, a significant savings for low-income residents.
There are currently nine states that have no income tax, according to Reason.com.
States with low-income taxes enjoy greater economic prosperity. Just compare Texas, which has no personal income tax, and Oklahoma, which has a top rate of 4.75 percent. Last month, the Tax Foundation found that Texas' economy grew roughly 35 percent faster than Oklahoma's over the last two decades, with Texas' personal incomes and gross state product being notably higher too.
A 2008 longitudinal study that analyzed economic growth in the States from 1964 to 2004 found that states with higher income taxes stifled economic growth, entrepreneurialism, and access to capital. Since Mississippi announced its cuts, Oklahoma's governor wants in on the change.
Low income tax makes states a magnet for investment. As noted by the Mississippi Center for Public Policy (MCPP), since the state reduced its income tax to a flat 4 percent in 2022, the Mississippi Development Agency reported a whopping $25 billion in inward investment. Businesses often consider tax burdens when deciding where to establish operations and maximize gains, while workers are drawn to areas where they can retain more of their earnings.
Mississippi's journey to a no-tax haven was a long and winding road. At one time, the state had one of the highest individual rates in the nation; 3% on income over $0, 4% on income over $5,000, and 5% on income over $10,000. That rate was comparable to Illinois at the time.
Then, in 2017, Mississippi decided to phase out its lowest tax rate, which they accomplished in 2022. That year, Republicans eliminated the 4% bracket as well, leaving a flat rate of 4% on incomes over $10,000.
Critics, unable to find anything substantive to oppose in the bill, attacked the legislation because of a typo in the printed copy.
However, critics of the new legislation aren't focused on its potential, instead pouncing on a typo in the text. This error would dissolve the income tax sooner than intended, but there would still need to be a preceding surplus for every cut.
This oversight is an asset. Mistakes allow for increased flexibility and democratic debate regarding how states should enact tax policies and craft more ideal, air-tight rules. Suggestions and corrections can be issued with future legislation, like Mississippi's Senate Bill 3095 to cut grocery and income taxes, and other states can use these instances to draw public awareness to pressing state issues. As MCPP [Mississippi Center for Public Policy] CEO Douglas Carswell wrote, "The revenue trigger still prevents reckless cuts that would harm the state's fiscal health."
The National Taxpayer Union (NTU) believes the "error" may have been a fortuitous mistake.
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.
Related: Liberals Have Gone From 'Hope and Change' to Defending the Status Quo
Oklahoma is already considering a similar phase-out of state taxes. Other states will watch closely to see how revenue is affected in Mississippi. Blue states not only have high-income taxes, they have sky-high taxes on groceries and crushing fees for state services like driver's licenses.
As we've seen in recent decades, people will vote with their feet.
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