HB1 is a comprehensive effort to modernize the entire code
Legislation that passed the Mississippi House January 16 is far more than just a gradual elimination of the state income tax, said Rep. Trey Lamar, R-Senatobia.
Even the number given to the bill, House Bill 1 (HB1), indicates the priority the representatives have put on tax reform. The legislation passed by a large margin with 88 voting yes and 24 voting no—a margin of more than three to one.
Lamar, who authored HB1, said a lot of excitement has been generated by passage of the bill which would eliminate the tax on work in Mississippi and take a holistic approach to reform the state’s tax code.
“I want us to have the number one tax code in America by responsibly ending the income tax on hard-working Mississippians, and by cutting the grocery tax in half in the next ten years,” Lamar said. “The sales tax on groceries would decline from 7 to 4 percent in year one, and reduce it to 2.5 percent over ten years. To replace what cities and counties were getting from sales taxes, there will be a 1.5 percent general sales tax increase. That will result in an increase of 15 percent over what cities are currently getting from sales tax diversions. It is going to help the cities. For a city like Madison, that would create a couple million dollars in extra tax revenue each year. It is real money. They can use that to lower property taxes or provide for the needs of local government.”
Currently the state sends 18.5 percent of state sales taxes to cities. The general sales tax of 7 percent would go up to 8.5 with the local tax. Lamar said it is important to note the state’s sales taxes would still be lower than any state around it, which average 9.5 percent. Louisiana is at 10.5 percent. Arkansas has a state sales tax of 6.5 percent with a local government sales tax option of up to 5.5 percent, meaning sales taxes as high as 12 percent in some cities.
Top income tax rates would drop from 4 to 3 percent the first year, and then be reduced .3 percent each year until the tax is eliminated in 10 years.
Another major prong of the legislation is adding a five percent tax on retail sales of gasoline. Lamar said the gas tax would provide vital revenue needed to maintain and modernize the state’s roads and bridges. The Mississippi Transportation Commission has long advocated for better financial support. Lamar said the number one request from local county governments is more money for the Mississippi Office of State Aid Road Construction.
Gas taxes have been advocated as a way to pay for roads by those using the roads. Currently Mississippi has one of the lowest gasoline taxes in the country. Lamar said HB1 would generate about $400-million annually in new funding for MDOT.
“The plan would move us to more of a consumption-based tax code,” Lamar said.
Currently the Mississippi Department of Transportation receives funding from the state lottery. Lamar said HB1 would allow $100 million of the state lottery money to be repurposed to shore up the Public Employees’ Retirement System of Mississippi (PERS).
Lamar said the legislation would result in the largest tax cut in Mississippi history times two—a net cut of approximately $1.2 billion over ten years.
“At full phase in, we are left with a tax code that recognizes the importance of reducing taxes on groceries and eliminating the tax on work which frees up our citizens who earn money to spend it on their needs,” Lamar said. “If this is adopted, we will become the tenth state in the nation with no income tax. It will tell the business community of the world to look at what we are doing in Mississippi. We are proud to have the support of Gov. Tate Reeves and look forward to winning the support of our friends in the Senate, as well.”
Gov. Tate Reeves posted on social media that Lamar and House Speaker Jason White have delivered for Mississippi taxpayers.
“A huge THANK YOU to both of them!” Reeves posted. “Now the bill will go to the State Senate….so more work to be done! But today is a major step forward in our fight to eliminate the tax on work!”
Some financial consultants encourage Americans who want to limit their tax burden to move to a state with no income taxes. Proponents suggest that states with no income tax are more attractive for business and industrial growth, and hence create more jobs and economic activity. A potential downside is that it would eliminate a federal tax deduction for state income taxes, but that is only available for people who itemize their deductions and meet certain thresholds in state and local taxes.
The net loss of $1.2 billion in state tax revenues over ten years is expected to be offset by increased revenues generated by economic growth.