Poorest state in the US is eliminating income tax amid affordability crisis

One of the most impoverished states in the U.S. made a significant move to eliminate its personal income tax.

On March 29, 2025, Mississippi Governor Tate Reeves signed into law the historic “Build Up Mississippi Act,” known as House Bill 1, which eliminates the individual income tax in the Magnolia State. Reeves described it as a “profound, generational change” at the time, as the legislation is aimed to encourage growth, opportunity, and investment in the state.

Mississippi adopted a phase-out plan to completely eliminate the individual income tax by 2040, making it the 10th U.S. state without an individual income tax, alongside Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

According to the World Population Review, Mississippi ranked as the poorest state in the country, with 18.8% of its residents living in poverty. The state’s median household income is also the lowest in the country at $44,966.

Additionally, the state also has the highest child poverty rate, and 15% of its population is food insecure.

Eliminating personal income tax in the poorest state allows residents to keep more of their hard-earned money and could also attract more workers and businesses. For instance, when income isn’t taxed, retirees benefit because their pension payouts, monthly Social Security benefits, and retirement account withdrawals aren’t subject to state taxes.

The phase-out of individual income tax is set to begin in 2027, which may not be soon enough for some Mississippi residents. The high cost of the living in the U.S., between elevated inflation and soaring gas prices due to the Iran war’ chokehold on critical oil shipping, remain at the top of Americans’ list of most important financial problems their families are facing.

According to a Gallup Poll, 31% of Americans say the steep cost of living and inflation are their top financial concern, while 62% worry about not having enough money for retirement.

“The work of your hands belongs to you. It is yours – to feed your family and invest in your home and your community. Because that’s what this is ultimately about. Not just numbers on a balance sheet, but lives,” Gov. Reeves told Mississippians at a press conference after the legislation was signed.

Continuing, he said, “Generations from now, when our kids are raising families of their own in a stronger, more prosperous Mississippi, they will look back on this moment and say: this is when we took our shot. To the people of Mississippi: you are the real winners today.”

When will income tax be eliminated in Mississippi?

Mississippi is on track to completely eliminate its individual income tax by 2040. The phase-out plan for Mississippi’s income tax aims to reduce the 4% rate by 0.25% each year from 2027 to 2030, until it reaches 3% in 2030. The reduction is set to begin on Jan. 1, 2027, when taxable income exceeding $10,000 will be taxed at 3.75%.

After it reaches 3%, the income tax would be reduced by “growth triggers” based on the difference between the state’s revenue and spending for that year. Additionally, the legislation also decreases the tax on grocery sales from 7% to 5%, effective July 1, 2025, and increases the gasoline tax by 9 cents per gallon over three years.

Criticisms for eliminating Mississippi income tax

Some residents and tax policy experts in Mississippi are concerned that the income tax elimination may worsen the state’s disparities. Like all states, Mississippi needs to tax its residents to fund government operations and provide for its citizens. According to the Mississippi Center for Public Policy, the state’s income tax generates roughly $2.1 billion annually, which is 28% of the general fund.

The Center on Budget and Policy Priorities reported that when fully implemented, the legislation will cost the state roughly one-third of its entire general fund budget, further straining the poorest state in the nation.

The nonpartisan research and policy institute wrote that the legislation could lead to “harms such as fewer teachers in classrooms, longer wait times for health care, and deferred repairs to already crumbling infrastructure.”

Additionally, it said, “Future revenues that could have helped maintain roads and bridges, reduce child poverty, invest in schools, or support public health initiatives are now off the table.”

–

Source: Poorest state in the US is eliminating income tax amid affordability crisis