In a transfer that might reshape the best way People are taxed on the state degree, Mississippi and Kentucky have launched formidable plans to get rid of private revenue taxes—one thing no US state has accomplished in additional than 4 a long time.
The final time this occurred was in 1980, when oil-rich Alaska scrapped its revenue tax. Now, with price range surpluses following the Covid-19 pandemic and a nationwide development towards tax aid, the deep South is aiming for a repeat.
The Mississippi experiment
Governor Tate Reeves of Mississippi has signed into legislation a roadmap to section out the state’s 4% revenue tax—beginning with a drop to three% by 2030, adopted by conditional cuts tied to income development. If all benchmarks are met, Mississippi may turn out to be income-tax free by 2040. The plan additionally features a gross sales tax lower on groceries and a hike in gasoline taxes.
“This places us in a uncommon class of elite, aggressive states,” Reeves mentioned, referencing revenue tax-free states like Florida and Texas. “We have now the potential to be a magnet for alternative.”
However the plan comes with excessive stakes. Mississippi stays one of many poorest states within the nation and closely is determined by federal funding. Critics say shedding revenue tax income may cripple public providers if federal support is diminished.
“This can be a big proportion of what the state brings in to fund faculties, well being care, and different necessities,” warned Neva Butkus of the Institute on Taxation and Financial Coverage.
Kentucky’s extra cautious route
Kentucky, too, is eyeing zero revenue tax—however with a slower, extra hands-on method. A 2022 legislation permits revenue tax reductions provided that income meets particular targets and the state legislature approves every step.
The revenue tax is ready to drop to three.5% in 2026. A second new legislation permits smaller cuts even when revenues fall in need of bigger targets—one thing Democratic Governor Andy Beshear criticized as a “bait-and-switch.”
Regardless of his considerations, Beshear signed off on the 2026 tax lower, whereas letting the second invoice turn out to be legislation with out his signature.
The larger development
Mississippi and Kentucky be part of a rising group of states difficult conventional taxation fashions. Oklahoma lawmakers just lately superior a invoice to wipe out revenue taxes based mostly on income triggers. Missouri is weighing a capital beneficial properties exemption. And states like New Hampshire and Tennessee have just lately eradicated taxes on dividends and curiosity.
However consultants say wiping out revenue taxes after a long time of dependence is much tougher than by no means adopting them in any respect.
“It’s rather a lot simpler in the event you’ve by no means levied one,” mentioned Katherine Loughead of the Tax Basis. “When you depend on that cash, phasing it out is way more difficult.”
With financial clouds looming—from Trump-era tariff tensions to potential federal funding cuts—states might quickly discover out whether or not their tax-cutting gambles repay or depart them in a fiscal crunch.
