WRFH/Radio Free Hillsdale 101.7 FM - Alex Rosado: Mississippi Is Ditching Its Income Tax. Other States Should Follow.

Episode Date: May 7, 2025

WRFH host Megan Pidcock talks to Alex Rosado about his recent article for Reason Magazine titled, “Mississippi is Ditching its Income Tax. Other States Should Follow.” He breaks down what Mississippi’s latest legislation may mean for the state, and why other states should follow in its footsteps. Alex Rosado is professional programs assistant at the Alexander Hamilton Society, a research fellow for Horizon Info Consult, and a Young Voices contributor. From 05/06/25.

You're listening to Radio Free Hillsdale 101.7 FM. My name is Megan Pidcock. I am here with Alex Rosado, a professional programs assistant at the Alexander Hamilton Society and a contributor to many places to talk about his recent article titled Mississippi is ditching its income tax and other states should follow that he wrote for reason. Thank you for coming out today. Thank you so much for having me. Great to be here. So I just wanted to start off with if you could explain what this new legislation is for Mississippi and how it's different from what was previously in place. Sure. So prior to this passage of legislation that recently happened back in April when Tate Reeves, the governor of Mississippi, signed it into law. Mississippi before then, had a system that wasn't really working so well for them. They had more of a gradual income tax and it was hovering at about 5% or so. And you saw back in 2022, there was a wave of flat tax revolutions or at least flat rate revolutions where states such as Iowa, Georgia, Arizona, and even Mississippi took the leap from a progressive tax on personal income to a flat one. And because of that, you saw Mississippi gaining a lot of investment from a states, about $25 million worth, according to the Mississippi Center for Public Policy.

So that made Tate Reeves say, well, maybe if this is working thus far, let's take a little bit further. So they introduced House Bill 1, also known as the Buildup Mississippi Act, that seeks to, over the course of about 20 years or so, phase out the income tax in total in Mississippi. This was introduced by a representative called John Thomas or Trey Lamar, and it was transferred to the state Senate back in January and it amended their last months because there was a little bit of infighting among politicians about what exactly it should entail. And the persuasions were strong enough to flip the state house's stance on it. So they ended up passing it and they let Tate Reeve signed it into law. And how, what are the potential challenges that this will

cause and what are the benefits of it? Well, I think there were several. benefits to having lower state income tax, but to flip the question in a way, what do high state income taxes do? Well, first off, they lower personal income. You see that a center for research on Wisconsin's economy study all the way back in 2018 looking at Wisconsin's economy, it says that raising personal income tax rates by about 1% can lower personal income growth by almost a percent as well. But if you have corporate and sales tax rate, changes, they don't have little or any effect on that as well. So really it is the personal income tax that you've got to go after. And you should cut them. According to the Tax Foundation,

back in 2022, they saw that cutting the average personal income tax rate by about a percentage increased real GDP per capita by about 1.4%. So it's a net positive if you really even do so. High income taxes also stifle businesses. You saw that a study from the microeconomic insight looking at Census Bureau data from the United States, seeing that a one percentage point increase in the state's personal income tax also leads to the closing of about 0.2 to 0.4% of total businesses within the states. And half of those closures are happening within high-income, high personal income tax states, but they're being offset by lower tax states that are producing new businesses,

having entrepreneurial ingenuity at their forefront. So really having those policies in place, it's lower income tax, but it also means that you're growing other sectors as well, and especially the ones that fuel the greater state economies. Do you think that seeing that this may be successful, other states will follow in Mississippi's footsteps? I think so, and especially the Oklahoma governor. He recently saw what was happening in Mississippi,

Governor Kevin Stitt, and he said, we want to get in on this as well. Because he sees that, especially over time, and there have been studies going all the way back to the 1960s, showing that states with higher income taxes just stifle economic growth in general and also access to capital, such as community banks, such as the resources that should be put in consumers' pockets, manufacturers being able to produce more, and just having more of that tax burden, on citizens isn't helpful for how they want to navigate their daily lives and especially their purchasing power. You see that states with high income taxes limit purchasing power. In that sense, too, they really don't have a lot of business creation. And you're seeing, too, that with migration

data, especially from larger states such as New York and California that have high state income taxes, they're fleeing them in droves. They're going to places like Texas that have no personal income tax. You're seeing that in Florida, where the state income tax is severely limited. And now Mississippi hopes that they're able to jump on top of this as well. And it's even inspiring other places like Oklahoma that has a top rate of 4.75%. And you're even seeing with Texas and Oklahoma, it's an interesting dynamic. The Tax Foundation found back in March that Texas's economy grew about 35% faster than Oklahoma's over the last. last two decades. Texas' personal incomes and their gross state product were pretty remarkably

higher than Oklahoma's too. So Oklahoma isn't just being inspired by Mississippi. It's being inspired by the wave of tax reform that is sweeping a lot of these other southwestern states. You mentioned New York, California, and I do want to talk about how changing this in other states may affect them differently. But I just wanted to ask, you mentioned that studies have shown that this is helpful dating back to the 1960s, why has it taken this long for states to start considering getting rid of the income tax? Well, tax reform can't be observed in a vacuum. It has to be longitudinal, has to be observed through many years, through different policies, and especially one of the greatest features of the United States is that states have their own

set of policies because it is different strokes for different folks. What works for Rhode Island doesn't work for Georgia. What works for Oklahoma doesn't necessarily work for Pennsylvania. So it's that interchangeable and also just being adaptable to the local needs of citizens. And for Mississippi specifically, they were in much need of reform. And it's fantastic that the state house, the state Senate, and Governor Reeves were all able to work together to deliver sweeping reform. And here's why. Mississippi isn't doing too hot in terms of a lot of the poor metrics that measure their economy. they're the poorest state in the nation. About 18% of their population lives below the poverty line. Well, what's the national poverty average in America? It's about 12%.

Mississippi is also the hungriest U.S. state with a food insecurity rate of a whopping 32%. That is significantly higher than the U.S. national average of about 10%. You also see that Mississippi has the highest percentage of adults that say they don't have health care because of high costs. That's about 19%. So Mississippi is getting walloped with a bunch of bad policies, and especially having a high state income tax where it's diminishing people's purchasing power. It's slowing GDP. It's weakening employment rates. And it's making truly business growth harder to achieve. They're going to need all the help that they can get. So at least it's time for Mississippi to step up and have some policies that are really going to work within the

citizens favor. And sweeping tax reform is one of the most crucial in which you can do it. What are they expecting to see results of this past legislation? Sure. So the timeline for what's exactly happening with HB1 is going to be divided up over several years. As of right now, Mississippi's income tax rate is about 4.4%. They aim for next year in 26 for it to be 4%. And it's going to be a gradual phase out from there on out. So you're seeing in 2027 to 2030, due to the provisions of HB1, there's going to be incremental cuts to the tax rate, about 0.25% annually. That is going to reach 3% by 2030. So for 2013-onward, you are going to see what's called triggered reductions. You have to hit revenue targets in order to have further cuts

to the state income tax. And the further annual reductions are going to be up to about 0.3%. So in the best case scenario, you're going to see the income tax in Mississippi phased out by 2040. And this is something that was deliberately designed by the senators, by the House representatives, because any radical changes to the system, any super sweeping changes to the system, are going to be felt and reverberated through the poorest parts of Mississippi. So you need to have it in a gradual sense so that way you could observe change, calibrated if needed, and introduce additional legislation

in case there's any errors or in case anything doesn't exactly go to plan. My name is Megan Pitcock. You're listening to Radio Free Hillsdale 101.1.7 FM. I'm currently talking to Alex Rosado about recent legislation passed in Mississippi about lowering and eventually eliminating the income tax. So I wanted to get into, we've talked a little bit about how this would be good

for other states. I guess how would this type of thing be implemented in places like New York, California that you said people have been leaving for lower income states. How would they approach this differently? And what are the challenges that they might face? Sure. So even going back to migration trends with New York, California, there's been a mass exodus of those people from those states going to places like Florida and Texas that not only are tax havens, but more Republican states. And you see that across the board, Democratic states have higher state income taxes. It used to work for them. Not anymore. According to a 2017 study by ITEP says that high income tax states are reaping. higher migration rates. But due to the COVID pandemic, that has completely changed because those low, I would say, states with low state income taxes were the ones that championed economic liberty, like you saw with DeSantis's rollout of all of his COVID protocols. He championed individual rights and also ones that allowed the broader state economy to operate. He didn't muzzle them down

like California, New York. And so people said, we respect that. We want. want to be in on it too. So they're flooding to those places. But if New York and California are to have a chance at tax reform, they have to start with the corporate tax first. And for businesses that are within New York, especially within New York City, they are heavily taxed, but they don't mind it because they're the ones that have a lot of profit. So for them, it's working. And especially even for New York City with some of their other taxes that they've implemented, such as congestion pricing, with some of their traffic taxes, hasn't been going to plan. And there's even been in talks in the Trump administration and the Gabby Hockel's

governorship to try and repeal some of it. So they're seeing that higher taxes, whether they be implemented at a corporate level or at a traffic level, even at the state income level, don't really work as planned, but it's up to those states to calibrate their approach accordingly. What are the common criticisms of lowering the income tax? And how would you respond to them? some might just say they out flat right or outright just don't work. And there have been some studies that have been produced even most recently as 2023 and some going all the way back to the 80s

saying that states with low income taxes don't spur the economic growth that is what was predicted at the time. And that the high income states are the ones that have net migration, ones that boost this general or gross state production or boost employment rates. But that isn't the case for some of them. The studies are all over the place, but at least the ones that have been more within the mainstream are the ones that support the notion that low state income taxes are better off for most states. You take a look at the University of Oregon. They produce a study back in 2023, seeing that there is a statistically significant relationship between state income tax rates and unemployment, suggesting that states with higher income tax rates tend

to have lower rates of unemployment. You see that, according to the Mercatus Center, back in 2014, that a 1% increase in a state's average tax rate is associated with a 1.9 decrease in the growth rate of its gross state product. Solution, cut them. Reduction in individual income tax rates that decreases tax revenue by 1% of GDP leads to about a 2.5% increase in the GDP. And that's not me saying it. It's also the tax foundation rooting for it as well. You see that according to the Cato Institute, that again, with the migration, interstate migration of the highest herning households is correlated with tax levels. Nearly all the states with high net in migration ratios have lower taxes. So it's especially observable in today's environment, again, with 2022 states that join the cause.

And now there are nine states total within our union that don't have any state income taxes. The most recent was Missouri. And I will and I bet that they're not going to be the last ones for all the reasons that I've cited it more. Are there any concerns that this will make taxes higher in other places? How will the states make up the loss of income from? getting rid of income tax. Certainly. So this is all a balancing act. And you have to understand this is the role of representatives and senators to be economically minded as well, is that they just can't slice

one portion of the economy and not expect to recoup it in some other way. Especially for Mississippi, they're saying that some of the lost revenue from these taxes are going to be dispersed among other areas, such as whether it be with groceries, whether it be with tolls, or just other parts of everyday life. But it isn't going to be to the fact where you're taking the losses of the state income taxes, reappropriating it to these other areas for the guise of cutting taxes under the illusion that you're actually getting a deal. Meanwhile, it's growing in other areas. That's not the case. And especially with Mississippi's Senate bill that was introduced, Senate Bill 3095, it's going to cut those gross rate income taxes and especially correct some of the

errors that were existing within the original House Bill 1 and just kind of lower things across the board. But again, it has to be gradual. It has to be observable. If there are instances where they see that Mississippi's economy isn't responding well to these tax cuts, especially given the timetable that has been laid out at least until 2040, this is going to give them not only the ability, but also the governing power to make the correct decisions for consumer welfare and also give them the choice as well. And with these revenue, but say the revenue triggers that are going on too within these bills, it's going to prevent reckless cuts that will harm the state's fiscal health. So in a way, also, it's going to promote stronger and more accountable leadership at the state level.

And truly, that's going to empower not only the people that are within power, but also the ones that are going to receiving the bulk end of all of these tax cuts and its benefits. How is, is the way that Mississippi has approached the elimination of the income tax different than how other states have approached it before? And do you think that it's better or different? Certainly. And just for some of the nine states that don't levy a broad based individual income tax, they all do so in many different areas.

For example, Nevada, they don't have an individual or corporate income tax. Nevada gets most of its revenue from sales taxes, as well as the prominent gambling and mining industries that are within the state. So they figure that they use some of its best economic assets to make up for some of the lack of revenue that would come from these tax cuts. You're seeing that South Dakota doesn't have an individual income tax either. but they use the state franchise on income tax on financial institutions. So that way they're not taxing the people themselves. You also see that Tennessee doesn't have an individual income tax,

but they do have a sizable sales tax, I believe, about 10% or so. And that is the only tax that they have within the state. So there are ways of balancing it out. And especially for Mississippi, seeing that they have their own economic needs, whether it be with food insecurity, health care, job businesses, and growth, they're going to tend to what works best for a Mississippi approach. And in that regard, it's going to be boosting businesses, trying to get them in. And the Mississippi Center for Public Policy is very keen on the idea of trying to be with some of the strongest economic activity producers in the country that

just so happened to be Florida, Tennessee, Nevada. It's also going to make themselves have lighter tax burdens. So that way consumers can have more not only within their pocket, but also just have more purchasing power, especially as some of the greater economic trends, especially what you saw during the Biden administration, made

every penny that you got worth it. And truly, for the poor state, the union, every dollar kept is going to be critical, not only for their survival, but for the thriving of the entire state. It's going to take communities to band together to not only save a little bit, but also for the

state legislators to enact something that is truly going to make the change and raise the income per capita for Mississippians. And finally, is there anything else that maybe we haven't talked about yet that you would say would, that you would say in defense of getting rid of the same income tax? Well, just, I mean, taking a look at what Wallet Hub had to say back in 2024, they see that the states with lower income taxes have a lot more. money to work with to reinvest within their neighborhoods. And especially for a lot of citizens, they want local institutions that they can trust. Sometimes when it comes to banking, they don't really

want to depend on some of the financial institutions that have been established and in place for a long time. They want people who can give them a customized, tailored approach, especially to what they're dealing with on the ground. They want to know that people and institutions that are within their own backyard, have a core understanding of their beliefs and their dynamics, and especially for some of the greater, larger institutions, they are very risk-inverse. They don't want to take risks and try and fund a new avant-garde idea when there's potentially the risk that something can go terribly wrong with it and they lose money. But we need to make that gamble again. We need to have institutions that are willing to recognize the power of the people. And that

doesn't come with just recognizing their needs. It means doing something about it. And with the state income tax, it's something that can be tangibly felt over time, something that has been observed in depth, longitudinally, and also just across states as well. And honestly, something that is going to make even the poorest states competitive again. And that is truly one of the underlying factors of all of this, is economic competitiveness. If you want to grow personal income, if you want to have entrepreneurialism within your state. If you want to increase outside investment, if you want to boost employment rates, if you want to grow your GDP and GSP, have more people coming in and working for the state,

and make everyday items easier to obtain, you have to have tax reform. And truly, that is something that swept the nation for a while. It's going to continue to be a force. And Mississippi's example, and is the most recent example, of how this policy can be done right, and we'll just have to see in the future if it pays off. You're listening to Radio Free Hillsdale 101.7 FM. My name is Mega Pitcock, and I've been talking to Alex Rosado about Mississippi's recent legislation that they passed to eliminate state income tax and how that will affect state's tax reform in the future. Alex, thank you so much for coming on. Much appreciated. Thank you so much for having it.