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Mississippi Takes Bold Step to Phase Out Individual Income Tax by 2040
In a landmark move aimed at stimulating economic growth and investment, Mississippi Governor Tate Reeves signed the “Build Up Mississippi Act” (House Bill 1) into law on March 29, 2025. This legislation sets in motion the gradual elimination of the state’s individual income tax, a significant shift for one of the nation’s poorest states. Governor Reeves described the change as a “profound, generational” milestone designed to benefit Mississippians for years to come.
Under the new law, Mississippi plans to phase out its individual income tax entirely by 2040, joining nine other states-including Florida, Texas, and Washington-that currently do not levy a personal income tax. The phase-out begins in 2027 with a reduction of the tax rate from 4% by increments of 0.25% annually through 2030, when it will drop to 3%. Further reductions after 2030 will depend on state revenue growth.
The legislation also includes a reduction in the state grocery sales tax from 7% to 5%, effective July 1, 2025, and a gradual increase in the gasoline tax by 9 cents per gallon over three years to offset revenue changes.
Mississippi faces substantial economic challenges. According to the World Population Review, it ranks as the poorest state in the U.S., with nearly 19% of residents living in poverty and the lowest median household income at $44,966. The state also has the highest rate of child poverty and significant food insecurity affecting 15% of its population.
Proponents argue that eliminating personal income tax will allow residents to keep more of their earnings and attract new businesses and workers to the state. Retirees, in particular, stand to benefit since pension income, Social Security benefits, and retirement withdrawals would no longer be subject to state income tax.
Governor Reeves emphasized the impact on families during a press conference, stating, “The work of your hands belongs to you. It is yours – to feed your family and invest in your home and your community.” He added that future generations will look back on this legislation as a pivotal moment for Mississippi’s prosperity.
However, the plan has drawn criticism. Experts and advocacy groups warn that eliminating income tax could strain Mississippi’s budget and worsen existing disparities.
The Mississippi Center for Public Policy notes that income tax revenue currently accounts for approximately $2.1 billion annually, or 28% of the state’s general fund. The Center on Budget and Policy Priorities cautions that the loss of revenue could reduce funding for essential services such as education, healthcare, and infrastructure maintenance.
Critics argue that the reduction in state income tax revenue risks diminishing support for schools, public health programs, and road repairs, potentially harming the very communities the legislation aims to help.
As Mississippi embarks on this ambitious fiscal transformation, residents and policymakers alike will be watching closely to see how the phased elimination of personal income tax shapes the state’s economic future.