Mississippi Approves Franchise Tax Phasedown, Income Tax Cut
May 16, 2016
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.