Mississippi Approves Franchise Tax Phasedown, Income Tax Cut
On May 13, Mississippi Gov. Phil Bryant (R) signed legislation to phase out the state’s archaic franchise tax. Income and self-employment taxes will also be reduced.
My first testimony to a state was in 2008, in Mississippi. I focused on the state's archaic franchise tax – a literal tax on investment and capital formation, in a state that is starved of capital investment. A state commission endorsed the recommendation, but the state struggled with the fact that the tax brings in $260 million a year.
Beginning in 2018, the franchise tax rate of $2.50 per $1,000 of capital value will begin to drop. Also beginning in 2018, a new exemption of the first $100,000 of capital value will be exempt from tax.
|
Current (and through 2018) |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 and after |
|
|
Tax per $1,000 of capital |
$2.50 |
$2.25 |
$2.00 |
$1.75 |
$1.50 |
$1.25 |
$1.00 |
$0.75 |
$0.50 |
$0.25 |
None |
On the income tax, the bill slowly reduces the tax rate on lower levels of income until the first $5,000 is exempt from tax:
|
Income Levels |
Current (and through 2017) |
2018 |
2019 |
2020 |
2021 |
2022 |
|
>$0 |
3% |
0% |
0% |
0% |
0% |
0% |
|
>$1,000 |
3% |
3% |
0% |
0% |
0% |
0% |
|
>$2,000 |
3% |
3% |
3% |
0% |
0% |
0% |
|
>$3,000 |
3% |
3% |
3% |
3% |
0% |
0% |
|
>$4,000 |
3% |
3% |
3% |
3% |
3% |
0% |
|
>$5,000 |
4% |
4% |
4% |
4% |
4% |
4% |
|
>$10,000 |
5% |
5% |
5% |
5% |
5% |
5% |
Additionally, self-employed individuals will be able to deduct federal self-employment taxes. In 2017, they will able to deduct 17 percent; in 2018, 34 percent; and in 2019 and thereafter, 50 percent.
Mississippians are no stranger to the state's many challenges. Changing a tax system that deters exactly the kind of economic growth the state desperately needs and wants is a crucial first step. A comprehensive tax study is expected that will look at other possible changes, particularly after efforts to reform transportation and education funding fell short this session.
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