On January 16, 2025, the Mississippi House of Representative passed House Bill 1, the “Build Up Mississippi Act,” which proposes sweeping changes to the state’s tax structure. While the bill aims to reform Mississippi’s tax system, it raises concerns about equity, state and local funding for key services, and our state’s economic future. Combined with the 2022 tax cuts—the largest tax break for the wealthy in the state’s history—and adding to over $1 billion in tax cuts since 2012, HB 1 risks deepening economic disparities, reducing funding for essential services, and undermining local governments’ ability to serve their communities. The following provides a summary of HB 1, with a detailed analysis to follow in the coming weeks. 

Key Provisions of HB 1 

• Income Tax Phase-Out: Gradual elimination of the state income tax from 4% in 2026 to 0% by 2037 on taxable income over $10,000. 
• Local Sales Tax Option: Ends sales tax diversions to municipalities, allowing local governments to impose a sales tax of up to 1.5% by 2026. Counties opting out will lose access to the State Aid Road Fund, which helps fund rural road projects. 
• Capitol Complex Improvement District (CCID) Funding: Increases sales tax revenue for CCID in Jackson to support infrastructure projects, rising from 15.37% in 2028 to 21.72% by 2035. 
• Grocery Tax Reduction: Reduces the state sales tax on groceries from 7% to 2.5%. 
• Sales Tax Increases: Proposes several sales tax increases across various categories, including a 2.5% motor fuel sales tax increase, 2.5% increase on manufacturing and farming items, 0.5% increase on contractor equipment, and others. 
• Lottery Revenue Allocations: Provides $100 million annually for Public Employees’ Retirement System (PERS) until it reaches 80% funding, with excess funds directed to education and transportation. 
• Concerns with HB 1 
• Reduction in State Revenue: Mississippi is already experiencing the impact of the 2022 tax cuts, which reduced income taxes by $535 million annually. With an additional $577 million in tax cuts since 2012, contributing to over $1 billion in tax cuts in recent years that have primarily benefited the wealthy and corporations, eliminating the income tax—a major revenue source for the state—could drastically reduce funding for essential public services such as education, healthcare, and public safety. 

In addition, the state’s increased reliance on sales taxes increases income disparities, as the wealthy contribute less, while low- and middle-income families pay more. 

• Shifting Taxes to Low-Income Families: Eliminating the income tax disproportionately benefits wealthier Mississippians. Letting the wealthy off the hook from paying their fair share and asking Mississippians with lower incomes to pay more in sales taxes raises the cost of goods and services like clothing, utilities, and household necessities, which hits low-income families hardest and worsens economic inequality. This is especially concerning for Black Mississippians, Hispanic communities, women, and those in rural areas, who are more likely to face financial challenges and higher living costs due to historic inequities and the tax shift. 

• Long-Term Risks to Economic Growth: Proponents argue that eliminating the income tax will attract people and businesses, but evidence from other states shows that tax cuts do not necessarily lead to stronger economic growth. States without income taxes have experienced slower growth, lower average incomes, little to no improvement on the economic outcomes of residents despite population growth, and higher tax burdens on lower-income residents. Also, evidence shows that people don’t move to other states just because of their tax policy. Instead, a focus on quality education, affordable healthcare, strong infrastructure, and inclusive leadership is more likely to foster greater opportunity, build stronger communities, and grow economies. 

• Strain on Local Governments: Local governments face pressure to adopt a 1.5% sales tax increase to make up for reduced state funds. However, this may not be sustainable in communities with lower economic activity. Counties that opt-out risk losing access to the State Aid Road Fund, further hindering their ability to maintain county roads. Also, sales tax reliance could deepen disparities between wealthier urban and economically struggling rural areas. This could lead to a cycle of underfunding, deteriorating infrastructure, and diminished economic opportunities, particularly in the state’s rural communities.  

• Concerns with Grocery Tax Reduction: While reducing the grocery tax benefits everyone, local governments are concerned about losing this vital revenue stream. Lower revenue from the grocery tax could lead to budget shortfalls, forcing service cuts or higher taxes, particularly in communities with higher food insecurity or lower incomes, where grocery spending takes up a larger portion of household budgets. Without clear and stable revenue sources at both the local and state levels, reducing the grocery tax could create additional challenges for some Mississippi communities. 

• CCID Funding and Local Governance: The increased funding for the Capitol Complex Improvement District (CCID) could undermine Jackson’s local governance, especially in the context of ongoing state efforts to take control of the city. Redirecting resources to state-led initiatives weakens the city’s ability to manage its own growth and priorities, further eroding the autonomy of Jackson’s local government. 

Conclusion 

While HB 1 is promoted as a plan to “Build Up Mississippi,” it risks undermining the state’s economic foundation and equity. Instead of prioritizing tax cuts that benefit the wealthy, policymakers should focus on creating a fair, sustainable tax system that ensures access to essential services like quality education, healthcare, and infrastructure for all Mississippians, especially those in underserved communities. 

The state could consider effective revenue-raising measures to ensure financial stability and benefit families, such as: 

• Taxing wealth to ensure the wealthy pay their fair share. 
• Strengthening, not eliminating, the state income tax. 
• Reinstating the corporate and estate taxes. 
• Expanding the sales tax base to include internet businesses and travel companies. 
• Implementing tax credits, such as a refundable state-earned income tax credit and child tax credit. 

We urge lawmakers to adopt policies that benefit all Mississippians, advancing equity, supporting local governments, and securing the state’s long-term prosperity. Thoughtful tax reform measures can ensure financial stability while promoting fairness, making sure every family, regardless of income, has access to the resources needed to succeed and thrive.