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.
