Senate plan will eliminate the 4% income tax bracket over four years but is not a complete elimination of income taxes at this time. 

The Mississippi Legislature is tackling income tax and how to get rid of it in the 2022 Legislative session. On Tuesday, the Mississippi Senate delivered an income tax cut plan that would phase out the four percent income tax bracket over four years.

The Tax Relief Act of 2022 was announced by State Senator Josh Harkins, Chairman of the Senate Finance committee. The package would provide roughly $446.6 million in tax relief to Mississippi taxpayers without raising any other taxes.

Lt. Governor Delbert Hosemann said the Senate is committed to cutting taxes without an offsetting increase.

“We want a durable plan that can stand the test of implementation and the future,” said Senator Harkins regarding the proposal.

The highlights of the proposal include:

  • An immediate​ reduction in the grocery tax from 7 percent to 5 percent, at a cost of about $118.4 million;
    • Cities and Counties will remain whole.
  • An immediate elimination of the state’s fees on car tags going to the general fund, to the tune of an estimated $13.3 million;
  • A 2022 rebate of up to $1,000 for citizens with tax liability, which totals about $130 million; and
  • The elimination of the 4 percent tax bracket over the next four years, at a cost of $185 million.

The proposal has a recurring tax reduction of $316.6 million by 2026 and a one-time tax rebate of $130 million, according to preliminary numbers provided by the Legislative Budget Office and Mississippi Department of Revenue. The reduction would begin in FY 2023 on July 1, 2022.

Harkins said the Senate plan will not create any holes in the state budget due to the phase out approach of the four percent bracket cut which equals about $46 million yearly. The first year has the largest hit to the general fund which comes to roughly $118 million.

“Around the kitchen table, Mississippi families are talking about the significant impact of inflation on the cost of groceries and other goods and services which are necessities in daily life,” Lt. Governor Hosemann said. “The Senate’s plan is sustainable and directly tackles inflation without increasing any taxes.”

While the bill has not yet been dropped, Harkins said he plans to bring it before the Senate in a few weeks. It will face a February 19 deadline once it is filed.

“Mississippi has had a record year in terms of revenue, so it was imperative to me we develop a durable tax relief plan which returns taxpayer money to taxpayers without raising any rates,” Harkins said. “The most important thing we can do as conservatives is get this right—and this plan allows for a substantial cut while still balancing the budget.”

The House released their proposal earlier in the session, which would completely eliminate the income tax with an increase in sales tax of 1.5 percent. They also cut the grocery tax from seven percent to four percent.

RELATED: Mississippi House set to pass its version of Income Tax Elimination

The House originally pushed for the elimination of income tax in 2021 but the bill did not make it out of the Senate. House Chairman of Ways and Means, Trey Lamar, said he hopes the Senate will work with the House to aim for a full elimination of the income tax.

“Again, this year the House, working alongside Governor Tate Reeves, has overwhelmingly passed transformative bipartisan elimination of the tax on work in Mississippi and now the Senate has followed suit with their own plan.  Although it pales in comparison to the transformative tax reform that Mississippi needs, the Senate’s effort is a giant first step for them and is to be commended,” said Representative Lamar said.

Rep. Trey Lamar

Lamar added that he believes Mississippians will realize that a complete elimination of the income tax, like the House proposed, would free up the working people to invest more in families, churches and communities.

“As the Chairman of the Ways and Means Committee I have pledged to think big, bold and with clear vision toward our future generations,” Lamar said. “I hereby plead with my Senate colleagues to not stop with their initial step today, but to work with Governor Reeves, Speaker Gunn and House leadership throughout the remainder of this Legislative session to fully eliminate the tax on work for our people.  We stand ready to work with you and we have proven that we are able to accomplish this milestone for our state and once and for all end the tax on work for Mississippians.”

Some critics of the House plan have called the tax cut a “tax swap,” since there was an increase in sales tax in order to make the state budget whole each year. Senator Harkins said those concerns by his colleagues made it important for the Senate not to increase another tax.

Harkins said he is not overly familiar with the House’s plan at this time but believes there will be plenty of time for the chambers to work together on each piece of legislation to find the best version for Mississippians.

In the drafting of the Senate bill Harkins said the Senate consulted the LBO office and Department of Revenue to have a better understanding of potential revenues since this year’s revenue is in an extreme excess due to the influx of federal dollars sent to the state.

Revenues for FY 2021 and FY 2022 have been above projections, however budget analysts have advised that revenues are likely buoyed by those federal dollars. This adds a distorted perspective as to how much revenue is one-time and how much is recurring.

Senator Harkins said the state’s revenue is about $600 million over budget this year. He said experts believe when it comes back down it will be at such a level that these numbers will allow for the budget to remain comfortable. The rebate, for instance, which totals $130 million will partially come back in sales tax revenue.

“Those may circulate through the economy, three, four times a year and those dollars being spent will bring revenue to the state which will help our overall general fund,” said Harkins.

Harkins said there are no hidden excise taxes within the legislation proposed by the Senate.

Additional spending for teacher pay raises should also be accounted for when making a projection. Both the House and Senate have proposed over $200 million in pay raises for teachers across the state.

“We need to continue to trim the fat while taking care of the core functions of government, including funding our schools and infrastructure. I believe we can responsibly accomplish both of these goals,” Lt. Governor Hosemann said.

The last major tax cut came in 2016 and was the largest Mississippi has ever seen. The Legislature was successful in phasing out the three percent tax bracket by 2022. It also phased out the franchise tax on businesses over a ten-year period ending in 2028.

“Governor Reeves and legislators gave us a great roadmap on how to do this with the 2016 tax cut package,” Harkins said. “We intend to follow that lead.”

Harkins said this bill has taken the largest portion of the largest tax cut the state is currently still paying off and they have introduced another tax plan that is almost equal in size but will be concluded before the 2016 plan is completed.

The soon to drop bill has already gathered support from groups like the Mississippi Center for Public Policy.

“We welcome the proposals outlined in the Senate today to cut taxes in Mississippi.  Reducing grocery taxes from 7 percent to 5 percent, a one-off tax rebate and the elimination of the 4 percent income tax bracket over four years would help local families,” said Douglas Carswell, President & CEO, Mississippi Center for Public Policy. “With two different tax reduction plans now being proposed, one from the House and the other from the Senate, it is important that we find common ground. Unless there is some meeting of minds, neither plan will happen.”