Skip to content

Mississippi’s Pro-Growth Tax Swap Proposal

3 min readBy: Colin Cook, Nicole Kaeding

Representative Charles Busby (R) in Mississippi has proposed a plan that would eliminate an income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. , while increasing the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate on fuel. The swap would allow Mississippi to transition from taxes on income to taxes on consumption and final users, reducing burdens on investment and aligning the government services taxpayers benefit from to the taxes used for their expenses.

The plan attempts to phase out the 4 percent tax bracket on income between $5,001 and $10,000, a move building upon 2016 legislation that initiated the phasing out of the 3 percent bracket on the first $5,000 of income. If passed, Mississippi would achieve a flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. rate of 5 percent on income over $10,000, along with a $2,300 standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. and a $6,000 personal exemption, meaning that the first $18,300 in income would be exempt from taxation for a single individual in Mississippi.

The fuel tax would add $0.03 to the price at the pump each year, over the course of four years for gasoline and five years for diesel, resulting in a total added tax of $0.12 and $0.15, respectively. Following the phase-in, the fuel tax would then be indexed for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. . As it stands, Mississippi has one of the lowest gas taxes in the country at 18.79 cents per gallon, and the lowest among all bordering states. Following the increase, Mississippi would be ranked in the top ten nationally for highest fuel taxes.

The proposal would also result in annual fees of $300 on electric vehicles, and $150 on hybrid vehicles, to account for people broadly unhampered by the increased fuel tax.

The Mississippi Department of Revenue estimates a $165 million reduction in income for the state stemming from the tax cut; however, the implementation of the gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. would supplement the loss by providing $302 million to the budget, resulting in a positive revenue stream overall.

While some in Mississippi may express concerns about increasing the state’s revenue through a consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. , the state has struggled meeting a backlog of infrastructure needs, particularly with roadways. Currently, 28 percent of Mississippi roads are in poor condition, and 12 percent of bridges are deemed as structurally deficient. An estimated $400 million a year in additional revenue is needed to compensate for these inadequacies.

As of fiscal year 2014, fuel taxes only covered 36 percent of Mississippi’s state and local spending on roads. The proposal would divert the state from using general revenue for the transportation budget, successfully allowing Mississippi drivers to more directly finance the expenses of the roads and bridges they benefit from. This proposal builds on the great progress Mississippi has made in recent years towards stronger tax policy.

Although the move may be regarded as regressive as it now forces low-income earners to pay more for gas, the simultaneous elimination of the 4 percent income tax rate, coupled with the recent phaseout of the 3 percent rate, would help to compensate these taxpayers for the increased prices at the pump, mitigating concerns about regressivity.

The transition to a flat tax rate would allow the state to simplify its tax code, making tax compliance easier for Mississippians, while only increasing an already low fuel tax rate relative to bordering states. The proposed bill would raise much needed revenue for its struggling infrastructure, and points Mississippi in the right direction towards a simpler, more neutral tax code.