House and Senate negotiations over proposals to drastically overhaul Mississippi’s tax code appear to be at a standstill as lawmakers weigh the impact federal spending cuts could have on one of the nation’s poorest and most federally-dependent states.  With only weeks left in the 2025 sessi on, lawmakers are pushing different proposals behind the scenes to see if Mississippi can pull off an experiment that no other state has accomplished: Eliminating an income tax after having it on the books for more than a century. The negotiations, which House Speaker Jason White said “appeared to have stalled” last week, are unfolding as the Trump administration and Republican-controlled Congress are floating massive spending cuts. Mississippi relies on the federal government for revenue more than almost any other state, with more than 40% of its annual budget coming from federal dollars. Deep federal spending cuts alongside the elimination or drastic reduction of the state income tax could reduce Mississippi’s ability to fund services, experts told Mississippi Today.   The House leadership, early in the session, advanced a proposal that would eliminate the income tax over the next decade, trim the state’s grocery tax, raise sales taxes and add a new sales tax on gasoline.  Weeks later, the Senate passed a less ambitious tax plan that cuts the income tax, raises the gasoline tax over several years and trims the grocery tax. The plan does not fully eliminate the income tax, which the House leadership and Republican Gov. Tate Reeves say is their main focus.  Proponents of eliminating the income tax say doing so would unleash economic growth by attracting corporate investment and new residents fleeing higher-tax states. Such growth would offset potential revenue losses in a state that has enjoyed a budget surplus in recent years, they argue. Economists, however, are divided on whether such growth would blunt the impact of potential budget shortfalls in a poverty-stricken state. Neva Butkus, a senior analyst at the Institute on Taxation and Economic Policy, published an analysis late last month on the tax proposals moving through each chamber. The organization’s modeling estimates the Senate plan would result in $876 million in lost revenue. The House plan would reduce state revenues by $2.1 billion compared to taxes today – a 30 percent reduction of the state’s current general fund, the organization projected. These numbers are for the state general fund and do not deduct the tax increases in the respective plans that would generate revenue for roads and local governments. “At a time when states across the country are forecasting deficits or anticipating slowing revenue growth, Mississippi lawmakers are debating deeply regressive and expensive tax cuts that would overwhelmingly benefit their state’s richest residents,” Butkus wrote. “Cutting revenues while shifting taxes away from the state’s richest residents to low- and moderate-income families who already struggle to make ends meet is shortsighted.” Republican House Speaker Jason White, one of the loudest voices calling for income tax elimination, said the federal cuts floated by national Republicans thus far haven’t convinced him legislators should hold off on approving new tax cuts.  He told reporters this week that House leaders have continued to meet with Senate officials to work out a deal. He remains flexible on what a final proposal could include, but remains committed to finding a path to complete elimination of the income tax, instead of just a cut.  “The Senate has kicked around this idea that they might entertain total elimination, but over a very long period of time,” White said. “We’re trying to see exactly what that looks like, should it involve (revenue growth) triggers. We would be open to triggers … For us, if we’re going to go that far on some of these issues, we would want to include total elimination.” White and other proponents of income tax elimination view the income tax as an unfair burden on working people. Nine other states — including nearby Florida, Texas and Tennessee — don’t have a state income tax. Proponents of elimination argue that Mississippi is at a competitive disadvantage. Leaders of the 52-member Senate have been tighter-lipped, but they’ll likely meet before a key Tuesday deadline to either offer their original tax cut plan again or advance a new proposal for the House to consider.  Senate Finance Chairman Josh Harkins, the chamber’s lead negotiator, told Mississippi Today that the Senate wants to cut taxes but would only agree to a plan that won’t drain state coffers. And the Flowood Republican says his Senate colleagues are deeply concerned that the tens of billions the state receives from the federal government every year could be frozen or reduced by the spending cuts congressional Republicans and President Donald Trump are considering. “Any cuts that the federal government is contemplating are going to trickle down at some level, and it’s going to impact us,” Harkins said.  House and Senate leaders both want tax cut legislation to be paired with a plan to ensure the state’s employee retirement system, which has debt of roughly $25 billion, remains solvent for the long term. But they haven’t reached consensus on how to do that.   An unknown variable in the legislative equation is what Republican Gov. Tate Reeves is willing to do to achieve his stated goal of eliminating the income tax.  In social media posts, Reeves has repeated his support for total elimination of the income tax, and dared the Senate, which is led by Lt. Gov. Delbert Hosemann, to oppose the policy. But the second-term governor has offered no plan of his own this year and has largely been absent from the Capitol during the debate. If the two chambers cannot agree on a final plan, he could call them into a special session and use his bully pulpit to try to force a compromise.  READ MORE: ‘Not COVID. It’s Trump’: Lawmakers prepare for tumultuous Trumpenomics by … upending state tax structure While the state’s top politicians debate whether Mississippi, a state that has failed to fix its high poverty rate and whose agencies continue to deal with costly lawsuits and federal investigations, national experts have cautioned that drastic tax cuts alongside a reduction in federal funding could cripple the state economy if lawmakers aren’t prudent.  Justin Theal, senior officer at The Pew Charitable Trusts, said across the country state budget stresses are more widespread than they have been at any time since at least the COVID-19 pandemic struck in 2020, before any federal cuts were on the table. This trajectory means legislators will need to consider how changes at both the state and federal levels could put state revenues at risk of chronically falling short of ongoing spending, Theal added. “Federal spending cuts could ripple through Mississippi’s broader economy, particularly in sectors that depend on federal funding, contracts, or employees,” Theal said. “This could, in turn, increase demand for public services at a time when budget flexibility is already tightening.” States that have a smaller tax bases stand to bear the brunt of slashed revenues and cuts to federal programs, said Lucy Dadayan, principal research associate with the Urban-Brookings Tax Policy Center. “The uncertainty is even bigger for states like Mississippi, Louisiana, Alabama and other states that have high reliance on federal funding and low fiscal capacity.”  In late February, the Republican-controlled U.S. House passed a GOP budget blueprint with $4.5 trillion in tax breaks and $2 trillion in spending cuts despite fierce opposition from Democrats and discomfort among some Republicans. A significant chunk of the federal budget is spent on health care, food stamps, student loans and other social service programs, which Democrats and even some Republicans worry could be on the chopping block. The implications could be dire for a poor state like Mississippi, some fear.   “While other states are preserving revenues in anticipation of reductions to federal dollars that help deliver programs like SNAP, Medicaid, and education resources, Mississippi lawmakers are instead considering costly and regressive tax cuts,”  Butkus wrote. The post Mississippi lawmakers struggle to reach tax agreement as federal cuts loom appeared first on Mississippi Today. ...read more read less