Across the Nation

Mississippi Income Tax Relief Plan Torpedoed: Where Does the State Stand in Economic Outlook?

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Nearly unanimous Democrat opposition has torpedoed plans for across-the-board Mississippi income tax relief. A bill proposal passed by the Mississippi House of Representatives in late February would have eliminated the income tax over the next 15 years. In March, the Mississippi Senate approved a modified version of the bill that, while not eliminating the state income tax, would have cut back business and income taxes. But plans to reduce taxes by $555 million over 15 years failed, because support did not meet the required 3/5 super-majority.

A 15-Year Income Tax Phase Out

The House bill that passed in February (83–32) proposed a $1.5 billion cut that would have eliminated the state income tax gradually, beginning with the bottom 3 percent bracket first. The tax cuts would have phased in so long as the state realized revenue growth of 3 percent per fiscal year. Speaker of the House Philip Gunn explains that “with a minimum of three percent growth, there would be an additional $3 billion in revenue growth.” This phase-out would result in giving “half of that back to the people of this state.” Even a family earning just $30,000 would save approximately $1,350 annually, according to Gunn’s proposal; a family earning $50,000 per year would save $2,350.

Magnet for Capital

Mississippi’s relatively lower burden of state government already acts as a magnet for capital. Elimination of the state income tax has the potential to improve the economic situation even further.

According to Internal Revenue Service (IRS) data compiled by How Money Walks, Mississippi gained nearly $700 million in adjusted gross income (AGI) from people who relocated to the state over the period 1992–2011. This number is the net total, meaning that it already accounts for the loss of income from people moving out of the state.

The largest inflows of income came from neighboring Tennessee and Louisiana. But the other top states are from much farther away: Illinois, Michigan, and sunny California.

Relocation Tax Savings

Jackson may offer a less temperate climate than Los Angeles, but the existing tax savings are substantial. Calculations from Saving Taxes by Moving, for instance, reveal that a working couple making a combined household income of $130,000, with two children at home, would save $627 in annual state income taxes by relocating—in addition to the lower cost of living. Investing these savings at just a 6 percent annual interest rate would yield a more than $57,000 net worth increase upon retiring at age 67.

Data from the U.S. Census Bureau highlighted by How Money Walks also shows that despite losing population overall from domestic migration from 1985–2011, Mississippi gained population from some states—including more than 16,000 from neighboring Louisiana and Tennessee. Also in the top five were Illinois (more than 6,000), Michigan (more than 3,000), and California (more than 2,600).

An Inquiry into the Nature and Causes of the Wealth of States explains that specific state policies, particularly taxation, influence people to uproot and pursue opportunities elsewhere. Each year, the American Legislative Exchange Council explores this concept, ranking each state’s economic outlook by analyzing these policies.

Mississippi’s Economic Outlook

Mississippi’s economic outlook may have declined from 14th place in 2014, to 20th this year, but it’s no surprise that it gained population from California, Michigan, and Illinois—ranked 44th, 24th, and 40th respectively in economic outlook. In addition to economic outlook, Mississippi is also a right-to-work state, levies no inheritance or estate taxes, and ranks among the top 32 percent when it comes to state property tax burden.

The proposed Mississippi income tax cuts would have enabled Mississippi to further enhance economic opportunity by attracting both capital and the greatest resource—people—to the region. Although the recent concrete efforts for tax relief were stonewalled, the potential benefits of tax relief means this probably won’t be the last time Mississippi lawmakers debate the issue.

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Joel Griffith is an attorney, writer, and financial professional based in Washington, DC. Presently, he is a research associate in the Chief Economist's Office at The Heritage Foundation. Joel graduated from the Chapman University School of Law where he was Treasurer of the Investment Law Society at Chapman and vice-president of the Chapman chapter of the California Republican Lawyers Association. In Throughout the 2012 election season, he worked for a presidential campaign as MI state field director, OH state operations director, and parliamentarian/assistant delegate strategist in WA . Joel also serves as DC Chair of the Young Jewish Conservatives.