A significant tax reduction proposal was passed by a House committee on Tuesday evening, aiming to eventually eliminate the state income tax, decrease taxes on groceries, raise local sales taxes, and allocate more funds for infrastructure projects related to roads.

The plan is projected to reduce the state’s revenue by approximately $1.1 billion over time. Advocates assert that economic growth will compensate for this loss, asserting it will not lead to substantial cuts in government services or expenditures.

House Ways and Means Chairman Trey Lamar described the legislation as potentially one of the most transformative legislative actions in the state’s history during the committee meeting.

The legislation moved forward in the GOP-majority House committee without notable opposition, although House Democratic leader Rep. Robert Johnson III expressed apprehensions that future state budgets may lack sufficient revenue to balance the tax cuts.

As part of the plan, the income tax rate will drop from 4% to 3% next year, followed by an annual reduction of 0.3% until the tax is entirely removed within a decade.

Additionally, the legislation proposes to lower the existing 7% sales tax on groceries to 2.5% over time. Presently, Mississippi’s 7% sales tax revenue is shared between the state and the municipalities where it is collected. To address the expected revenue shortfall, the legislation aims to terminate the state’s 18.5% sales tax diversion to municipalities, ensuring that the total collected sales tax is directed to the state budget.

To compensate municipalities, a new 1.5% local sales tax will be introduced, which local governments can choose to opt out of. Funds generated from this tax will be allocated for local road maintenance.

Independent Oxford Mayor Robyn Tannehill attended the Ways and Means meeting and indicated her support for the 1.5% local sales tax, given that it would provide additional revenue for municipalities.

Furthermore, the legislation outlines a new 5% tax on gasoline sales, intended to strengthen the budget of the Mississippi Department of Transportation for infrastructure improvements on roads and bridges. This tax is expected to generate about $400 million annually. Currently, Mississippi enforces a flat gasoline tax of 18.4 cents per gallon, which does not fluctuate with gasoline prices. Transportation officials have long argued for an indexed tax that adjusts alongside price changes to secure adequate funding for road upkeep.

With the average gasoline price currently at $2.62 per gallon in Mississippi, the proposed tax increase would add approximately 13 cents per gallon for consumers.

Lamar, representing Senatobia, announced plans to present the bill for a full House vote this week, where its passage is anticipated in the 122-member chamber. However, the legislation still faces numerous legislative hurdles before becoming law.

Following approval in the House, the bill will likely be forwarded to the Senate Finance Committee, chaired by Republican Sen. Josh Harkins of Flowood. Harkins has not yet commented on this latest legislation, but he previously indicated that the Senate would introduce its own tax cut plan in the upcoming weeks.

If both House and Senate manage to agree on a unified tax cut proposal, it will be sent to Republican Governor Tate Reeves for his approval. Reeves has been an outspoken advocate for abolishing the income tax; however, his stance on this specific tax reduction scheme remains uncertain.

Lamar shared with reporters that he has had discussions with Reeves’ office and is optimistic that the governor will support the legislation. Nevertheless, there has been no official confirmation from the governor’s office regarding its position on the proposed bill.

Historically, Reeves has voiced opposition to “tax swaps,” referring to proposals that decrease one form of tax while increasing another, such as the recent House initiative. He has also resisted previous efforts to raise the gasoline tax.

Reeves remarked last week at a press conference, “If a bill comes to my desk that doesn’t raise any other taxes and that cuts the grocery tax and cuts the income tax, I’m fine with that.”

In 2021, he notably opposed a proposal led by Lamar and former House Speaker Philip Gunn aimed at eliminating the income tax while lowering the grocery sales tax by half, simultaneously increasing the sales tax on various other items by 2.5 cents.