Mississippi plans to eliminate income tax by gradually cutting rates

In the United States, recent legislative changes in Mississippi and Kentucky signal a potential movement toward eliminating state income taxes. Mississippi's Governor Tate Reeves enacted a law that aims to reduce the state's income tax rate from 4% to 3% by 2030. This plan further allows for additional cuts tied to state revenue growth benchmarks, encouraging a gradual approach to tax elimination. Alongside this reduction, the law decreases the sales tax on groceries while raising the gasoline tax, reflecting a strategy to boost consumer spending by reducing income tax burdens. Reeves regards this tax repeal as a means to enhance Mississippi's competitiveness among states. Simultaneously, Kentucky reacted to similar sentiments by passing a law in 2022 that reduced the income tax rate and established rules for gradual reductions based on revenue targets. This law includes provisions that could allow smaller cuts if revenue growth does not meet specific thresholds. However, Kentucky's Governor Andy Beshear expressed concerns regarding the potential for this legislation to mislead voters, labeling it a “bait-and-switch” bill. He argues that assurances regarding the stipulations for future tax cuts were altered last minute following discussions on a significant 2026 tax cut. Historically, it has been approximately 45 years since any U.S. state has completely eliminated its personal income tax on wages. While Mississippi and Kentucky explore the possibility of following through with such reforms, the decisions are taken amid uncertainties, especially considering potential impacts from federal policies instigated by former President Donald Trump that may affect state funding. Other regions are also re-evaluating their tax structures; for instance, Tennessee and New Hampshire have shifted from taxing income from wages to eliminating taxes on interest and dividends in recent years. The movement towards reducing or eliminating income tax appears to stem from a desire to make states more attractive for individuals and businesses, thus fostering economic growth. In Oklahoma, a similar legislative initiative aims to gradually cut personal income tax rates, signaling broader interest in rethinking state tax policies across various states. As states like Mississippi and Kentucky navigate these changes, the implications for revenue and the potential impact on their economies remain focal points for both lawmakers and citizens. The strategies employed reflect a significant shift in fiscal philosophy and could pave the way for other states contemplating similar reforms in pursuit of increased competitiveness and economic resilience.