States like Mississippi and Kentucky are leading a trend of reducing or eliminating income taxes on wages and salaries, following a surge in revenues and historic surpluses post-COVID-19 pandemic. In Mississippi, Governor Tate Reeves recently signed a law to gradually reduce the income tax rate from 4% to 3% by 2030, with the goal of eliminating it by 2040. Kentucky has also passed a law to gradually lower income tax to zero, pending General Assembly approval for each decrease.
The move to eliminate income taxes is seen as a way to attract businesses and residents, similar to states like Florida, Tennessee, and Texas. However, critics warn that relying on other taxes, such as sales tax, could disproportionately affect the poor and may lead to financial crises if federal funding is cut along with state income tax reductions.
Other states, including Oklahoma and Missouri, are also considering phasing out income taxes if revenue growth benchmarks are met. The Tax Foundation’s Katherine Loughead acknowledges that eliminating an income tax is more challenging for states that have become dependent on this revenue source. Overall, the trend toward eliminating income taxes signals a shift in state tax policies, with states taking advantage of improved economic conditions to reduce tax burdens on wage earners.
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