Three days ago, it appeared as if lawmakers in Mississippi were speeding down the fast lane en route to an impasse on tax reform. However, ahead of a Tuesday deadline, a U-turn of sorts was executed Monday by both the House of Representatives and Senate revealing amended yet similar versions of the opposite chamber’s tax cut plans.
Circling back to Friday’s series of events, Republican House Speaker Jason White took to social media with a scathing rebuke of his cross-chamber counterparts failing to pass a bill to fully eliminate the state’s income tax. Early in the session, the House passed HB 1, or the “Build Up Mississippi Act,” to phase the tax on work out over the next 12 years. The Senate, on the other hand, initially passed a tax cut of its own but one that stopped shy of full elimination.
“After the House passed this transformational piece of legislation and set the stage for the legislature to work together to eliminate the income tax, the Senate produced a modest tax cut that does not lead to full elimination,” White wrote, taking a shot at Republican Lt. Gov. Delbert Hosemann. “We were elected by a conservative supermajority to enact conservative policies.”
Hosemann, who presides over the Senate, fired back by hammering White and various House committees for inaction on Senate bills that systemically addressed ways to shore up what economists say is a $25 billion unfunded liability – the public employees’ retirement system. Hosemann questioned whether the House was even willing to take meaningful steps to tackle the lingering PERS issues.
“True leadership is addressing the state’s $25 billion debt to pay our employees and retirees their promised PERS benefits, which the Speaker has killed and continues to ignore,” Hosemann responded on social media. “The Senate is committed to fixing PERS. Is the House?”
Countering Hosemann’s assertion that the House is not taking state employees’ retirement portfolios seriously, White pointed to a measure in his chamber’s tax reform proposal that directly addresses PERS. In the pre-amended version of HB 1, annual proceeds of $100 million from the lottery would. Have been allocated to PERS until the system’s long-term liabilities were funded at 80%.
“What Mississippians, including House of Representatives members, are concerned about is your lack of leadership to address the money side of the problem you refuse to engage in: a dedicated stream of revenue directly to PERS,” White continued on social media. “You have in your Senate a House Bill that directly addresses the MONEY side of the PERS problem by dedicating $100 million annually of the state’s share of lottery proceeds DIRECTLY to PERS.”
The social media infighting between the Republicans who control GOP-powered chambers of the capitol stopped there, and it looked like tax discussions were zooming down a dead-end street in the waning weeks of this year’s session. But on Monday, things changed. Days after both White and Hosemann aired out grievances online, both sides took one another’s tax reform legislation and added their proposals to each respective bill.
The Senate’s new plan to cut taxes
For the first time, the Senate has acquiesced to calls to eliminate income tax.
The chamber’s proposal cuts the income tax from 4% to 3% between 2027-2030 with plans for future cuts down to elimination contingent on economic growth. For example, if Mississippi has a rough year financially after 2030, guardrails are in place to prevent a tax decrease that year. However, according to Hosemann, the goal is full elimination.
As was part of the Senate’s original plan to cut taxes, Mississippi’s nation-leading sales tax on groceries would drop from 7% to 5% in July 2025 to give consumers relief at the checkout line.
The Senate has also kept its 9-cent increase to the excise tax on gas intact. 74% of revenue accrued would go to the Mississippi Department of Transportation, 23.25% to the State Aid Road Construction Fund, and 2.75% to the Strategic Multi-Modal Investments Fund for infrastructure upgrades.
A major shakeup in the updated legislation is moving new state employees to a Tier 5 retirement plan under PERS. This would apply to those who take state jobs after March 1, 2026. A measure approved by the PERS Board of Trustees in 2024, Tier 5 would reform the benefit structure for future state workers to rectify concerns about the financial viability of the program.
“Today is a really good day for Mississippi. What’s happened today is after a lot of time and effort, we have come up with a proposal that is fiscally responsible, that stops the bleeding on PERS, and starts the process of making sure we have enough money to pay our retirees and people who work here,” Hosemann said during a Monday evening press conference. “We are continuing the road to the elimination of income tax. To be able to come to this process is a significant day in Mississippi.”
The House’s new plan to cut taxes
The House’s modified version of its original tax reform plan now incorporates an immediate reduction in the grocery tax. Instead of paying a 7% sales tax at market counters, that number would go to 5% in July 2025 – just like the Senate’s plan.
Unlike the Senate’s plan, the House would replace lost revenue in grocery stores by increasing sales tax from 7% to 8% on non-grocery items. $48 million of the revenue generated, according to the bill, would be disbursed to the State Aid Road Fund annually. All additional proceeds would go to the state’s general fund.
One addition that was not initially addressed is a change to the state’s use tax – a fee consumers pay on items that were not purchased locally. Mississippi’s use tax would go from 7% to 8% just like the sales tax on non-grocery items. Revenue garnered by the upped use tax would be used to provide a $200 annual credit in property tax relief to Mississippians 65 and older through the Homestead Exemption Reimbursement Fund.
Just like in the Senate, the House’s plan includes an increased excise tax on fuel. The gas tax would be upped by five cents per year over a three-year span, resulting in a 15-cent total increase. Monies secured through the raised gas tax would create a stream of recurring revenue for the Mississippi Department of Transportation and the Strategic Mult-Modal Investments Fund.
The House and Senate still butt heads over strategies to address the public employees’ retirement system. The House is keeping its proposal of $100 million generated from the lottery going to PERS until it reaches an 80% funded ratio. The remaining dollars will go to education.
One final highlight of the House’s new plan is that $300 million will be transferred from the Capitol Expense Fund to the Budget Contingency Fund, a special fund in the state treasury established to address unforeseen or urgent government expenditures.
“We are on the cusp of bringing all Mississippians the most significant tax cut in state history,” White said. “This cut would provide a tax credit to seniors on their property taxes, reward our workforce, and relieve the tax burden at the grocery store while also stabilizing PERS, dedicating a source of revenue to infrastructure, and enhancing our economic development opportunities.”
What’s next?
Before discussions can further advance, both proposals must pass this week on the floor of their respective chambers. If that happens, which is likely, leaders from both the House and Senate will go to conference with the goal of ironing out a consensus plan to cut taxes.
Just one year ago, two hot-button issues made it to conference: Medicaid expansion and replacing Mississippi’s public education funding formula. While the House and Senate were unable to find common ground on expanding access to government-provided healthcare coverage for the state’s working poor, the chambers were able to scrap Mississippi’s longtime funding formula for K-12 education in favor of one that was contended to be more equitable.
It is still possible that a compromise will not be achieved this session as both sides have taken drastically different approaches to a similar goal, which would lead to Republican Gov. Tate Reeves having to make a decision on whether to call a special session and forcing lawmakers’ hands when it comes to cutting taxes. Reeves has made it abundantly clear that his top goal is to fully eliminate income tax.
