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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