• Mississippi Governor Tate Reeves signed the “Build Up Mississippi Act” into law, marking the largest tax cut in state history.
• The bill includes a phased elimination of the state income tax, a reduction in grocery sales tax, and an increase in the gasoline tax.
• While proponents argue the tax cuts will boost the economy, opponents express concerns about potential negative impacts on state revenue and essential services.
• Critics, including economists and tax policy analysts, contend that the cuts will disproportionately benefit wealthy residents while placing a greater burden on low-income Mississippians.
• The long-term effects of the tax cuts on Mississippi’s economy and budget remain to be seen.

With a stroke of a pen, and a few light-hearted jokes, the Build Up Mississippi Act, the largest total tax cut in state history was signed into law on March 27.

With picture-perfect weather and the backdrop of the governor’s mansion behind him, Republican Gov. Tate Reeves, in sight of lawmakers, lobbyists, friends and the press, signed House Bill 1, an income tax elimination bill with unintended typos that will increase the rate of income tax elimination. The process could take more than a decade when all is said and done.

Those typos had become the latest episode in a saga of tax-cut negotiations between the House and Senate in the last two weeks. That was because the Senate’s plan was to very cautiously eliminate the income tax while the House wanted it done much faster. The typos in the bill secured for the House a quicker cut, and so they ran with it.

So did Reeves, who on Thursday characterized the legislation as a landmark point in the state’s history.

“Today is a day that will be remembered, not just for the headline, not just for the politics, but for the profound generational change it represents,” Reeves said. “I must say, it feels like it’s been a long time coming, but after many, many, many years of hard work, we can all stand together and say that we have accomplished income tax elimination in the state of Mississippi. Let me say that again, Mississippi will no longer tax the work, the earnings, or the ambition of its people.”

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Lt. Gov. Delbert Hosemann made some lighthearted jokes in his speech about the bill, noting that future Senate legislation would avoid similar mistakes.

“Some of y’all were focused on a typo in the bill, and I’d use the political analogy that he who has not had a typo cast the first stone,” Hosemann said.

Even as the bill is signed into law, the state is still phasing down the income tax from a 2022 cut. By Fiscal Year 2027, the state will be set at a 4% income tax. The cut signed into law on Thursday will phase the tax down to 3% by 2030, and then further cuts starting in 2031 will be activated by triggers.

Those triggers are where the mess of the typo situation took place. Future cuts were supposed to be based on an 85% growth in revenues over the state spending, but that was accidentally written as .85%, meaning almost any revenue growth would trigger a cut.

HB 1 also cuts the sales tax on groceries down to 5% from 7%, increase the gasoline tax by nine cents over three years to establish infrastructure funding and also establishes new hybrid public employee retirement benefits.

TAx cut: New talks over wording errors in historic tax cut will happen, MS Speaker said. Read details

“The elimination of the income tax is not just a win for our economy, it’s a win for freedom, a win for families, a win for the idea that Mississippi can lead and that we will lead in the century to come,” Reeves said. “I believe with all my heart that we will look back on this day as a turning point, a generational victory and a proud legacy we leave for those who come after us.”

Since the income-tax elimination effort began this year, proponents have pegged the effort as business friendly, attractive for recruiting new jobs and that it puts folks’ hard-earned money into their pockets.

As the session moved forward, the Senate wanted to consider a slower, cautious approach toward further tax cuts, and thus wrote amendments to HB 1 that included the trigger. Or so they thought.

Many state Democrats, as well as national economists and tax policy analysists disagree with the bill.

Neva Butkus, a senior tax analysist at the Institute on Taxation and Economic Policy, told the Clarion Ledger the state phasing out its income tax, a net $1.9 billion cut to the state’s budget, will only hurt the state’s economy and leave the legislature strapped for cash when it comes to providing essential government services.

“I don’t think Mississippi has to look very far to see the impact,” Butkus said. “Just last year, I believe the SNP downgraded the state’s credit outlook and cited the previous tax cuts as one of the reasons. Creditors and credit rating agencies were already concerned about the state’s ability to sustain a successful economy and pay their bills based on the last tax cuts.”

Butkus also made note of the fact that this comes at a time when the national GOP is intending to make massive cuts to the federal government, including federal-to-state money, of which Mississippi is the second biggest beneficiary behind Louisiana. If Mississippi loses out on that large amount of federal cash, the state could feel the hit across several agencies and programs Butkus said.

According to Butkus’ and ITEP research, the income-tax elimination will only result in nominal savings for the state’s poorest residents while tax increases on gas and moving toward a more consumption-based economy will likely put a higher financial burden on low-income Mississippians.

“Our modeling is showing that somebody in the top 1% and this is a household making about $1.4 million a year in Mississippi, on average, that household is going to get on average about $41,000 back as a tax cut once the income tax elimination goes through,” Butkus said. “A household right now making around $41,000 a year, they’re just going to get a couple hundred bucks back from this proposal. And in the meantime, you are going to be draining state coffers and draining the state’s ability to fund basic public services that the vast majority of Mississippians rely on.”

Grant McLaughlin covers the Legislature and state government for the Clarion Ledger. He can be reached at [email protected] or 972-571-2335.