The plan will eliminate the 4% tranche over four years and reduce the 5% tranche over six years.
A long-awaited agreement on what to do to eliminate state income tax finally came days before the end of the 2022 legislative session.
Originally proposed in the 2021 session by House Speaker Philip Gunn, eliminating or reducing the Mississippi income tax has become one of the session’s most debated agenda items. 2022.
The 2021 plan was killed in the Senate before adjourning for the year, leading the House to introduce another plan in 2022, shortly followed by the Senate’s own version of a tax cut. The Chamber offered various other revisions to their plan along the way. Even Governor Tate Reeves came up with a plan last week.
where they are now
With an 8:00 p.m. filing deadline set for Saturday night, participants met and agreed on the finalized state income tax cut plan. The conference report will be added to HB531.
Highlights of the income tax reduction compromise plan:
- Eliminate the 4% tax bracket by 2023
- Single-income taxpayers pay no tax on the first $18,300 of income
- Married filers pay no tax on the first $36,600 of income
- 5% slice reduced to 4.7% by 2024, 4.4% by 2025 and 4.0% by 2026
- Provides tax relief of $525 million per year by 2026
The plan does not raise any additional taxes and will not reduce grocery tax or car tag fees like previous proposals stated.
Sen. @SenatorHarkinspresident of finance, on the decision to reduce income tax #msleg pic.twitter.com/F5WJv4phG8
— Yall Politics (@MSyallpolitics) March 26, 2022
Chairman Gunn spoke to the press on Saturday regarding the compromise plan. He said he was proud that the Legislature was able to find a way to eliminate the first $525 million in income taxes for Mississippians. Gunn said while this is a good start, they will continue to fight for more tax freedom for citizens.
“Complete elimination is the goal, it is still our goal. Agreeing to this deal today does not waive our goal of total elimination, but it is the largest tax cut in the history of our state,” Gunn said. “It brings significant and real relief to our citizens.”
Lt. Gov. Delbert Hosemann maintained his caution following the compromise agreement, saying it allows government services to continue to be provided responsibly while easing the tax burden on Mississippians.
“The move to a flat 4% income tax puts more than $500 million in recurring dollars back in the pockets of taxpayers and makes Mississippi one of the most competitive in the nation in terms of income tax rates. “, Hosemann said in a statement. “This tax cut is the largest in Mississippi history. He is also responsible. Our constituents expect us to fund basic government services in infrastructure, education, health care and other areas. Our budget experts have assured us that we can continue to do so and significantly reduce the tax burden on hard-working Mississippians.
The adopted conference report still needs to pass the floor in both houses before it can be presented to the governor and become law. Due to procedure, the chambers cannot consider the bill until tomorrow, which all indications are that the House and Senate will do on Sunday.
UPDATE:
Governor Tate Reeves weighed in on the compromise, tweeting:
“The deal reached by the House and Senate is a tax cut of over $500 million. That’s good. I continue to believe that we can and should eliminate income tax. The environment fiscal is good.Unfortunately, the political environment in the SP Senate is not.
“Strong action that will change our state for the better takes time and passionate partners. For transformative change, we need our state’s lieutenant governor to work with bold conservatives.
“It’s a good step. It’s a win at the start of this fight. It’s not the end.“
Strong action that will change our state for the better takes time and passionate partners. For transformative change, we need our state’s lieutenant governor to work with bold conservatives.
It’s a good step. It’s a win at the start of this fight. This is not the end.
— Tate Reeves (@tatereeves) March 26, 2022
how they got here
In the past few weeks after the House and Senate plans were presented, members of each chamber explained their views on a tax cut versus a tax elimination.
President Gunn remained convinced that Mississippi deserved what he called “transformative fiscal policy”, which could only come in the form of elimination. It was disputed by members of the body, primarily in the Senate, and by the public who questioned whether Mississippi had enough sustainable revenue to lose so much of the state budget with an elimination. Currently, income tax revenues make up one-third of Mississippi’s annual operating budget.
Members of the Senate argued that a slower phase-out was desirable to ensure that the state budget could support the change. This prompted changes to the plan of each chamber in order to find a compromise for an agreement.
In order to add another option to the table, Governor Reeves presented his own plan for consideration as members moved through the process. Reeves’ plan called for an eight-year phase-out. The top marginal rate would have been cut immediately from 5% to 3.5%, which would amount to about $600 million, or less than half of the state’s current budget surplus. Reeves also called on lawmakers to cut the marginal rate by an additional 0.5% for the next seven years to achieve the complete elimination of income tax.
RELATED: Governor Reeves Calls on Mississippi Legislature to Eliminate Income Tax, Outlines 8-Year Phase-Out Plan
Although both chambers have agreed that Mississippi will have a significant revenue surplus for at least fiscal years 2022 and 2023, reliance on that continued growth over the next few years has them at odds.
While Gunn’s camp has operated on the belief that now is the perfect time to eliminate the income tax and provide relief during a major period of inflation, Lieutenant Governor Delbert Hosemann’s leadership in the Senate s Is wary that too drastic an elimination could leave the state in a bad financial situation a few years later.
At the Joint Legislative Budget Committee held just a day before the major tabling deadline, Hosemann said he was, and has been, in favor of eliminating taxes, but wants act in a conservative way that won’t require the legislature to come back to the taxpayers in a few years and say “oops”.
At that meeting, the legislature adopted a new revenue estimate for fiscal year 2022, raising it to $6.8 billion. It also increased the estimate for fiscal year 2023 to $6.9 billion. Mississippi currently operates on a budget of approximately $5.8 billion.
how it started
Kicking off the 2022 legislative session, the House gave up HB 531, the Mississippi Tax Freedom Act of 2022. The original wording of the bill eliminated state income tax by increasing the sales tax by 1.5% and reducing the food tax by 7% at 4%.
RELATED: Mississippi House Set to Pass Its Version of Income Tax Elimination
When the House passed the bill, Speaker Gunn said, “If there is a better idea, then we welcome it. Unfortunately, no one else has come up with an idea at this point.
Shortly after this action, the Senate dropped its own version of a proposed income tax cut, but it was not a complete elimination and was criticized by House members and the Governor. that it was not a transformative policy.
“We are doing something that we think is fiscally responsible and that puts us in a position in four years to come back and assess the environment, assess the economy and see where we are and we can move forward,” said Senator Josh Harkins.
SB 3164 initially reduced sales tax on groceries from 7% to 5%, phased out 4% income tax bracket over four years, reduced state share of label revenue car rental and provided a one-time rebate check of up to $1,000 for citizens with tax liabilities.