Could Mississippi and Kentucky Be the First States in Over 40 Years to Eliminate Personal Income Taxes?

About 45 years have gone by since any U.S. state has removed its income tax on wages. But Mississippi and Kentucky are now considering this bold move, hoping their economies will keep growing.

The trend to cut taxes has gained momentum in many states since the COVID-19 pandemic. States have seen a surge in revenues and historic budget surpluses. This has led to discussions about eliminating income taxes altogether. However, the situation isn’t without risks. Experts caution that relying solely on sales taxes may harm lower-income residents because those taxes tend to hit them harder.

As for which states impose income taxes, the 16th Amendment allows Congress to levy them, and most states have followed suit since it was ratified in 1913. Currently, eight states do not charge personal income tax: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Washington charges no tax on wages but taxes capital gains above $270,000.

Alaska famously eliminated its income tax back in 1980 when it was flush with oil revenue. But, as Katherine Loughead from the Tax Foundation points out, changing a state’s tax system is much easier if it never relied on that income in the first place.

### Mississippi’s Recent Efforts

Recently, Mississippi’s Governor Tate Reeves signed legislation to gradually reduce the state’s income tax from 4% to 3% by 2030. This plan includes revenue benchmarks which could lead to further cuts until the tax disappears completely, potentially by 2040. To balance this shift, the state is also lowering sales tax on groceries and increasing gasoline tax.

Supporters believe that eliminating the income tax will attract more businesses and families, making Mississippi more competitive with states like Florida and Texas. Reeves claims this could transform Mississippi into a hub of opportunity. However, critics worry that cuts in federal funding could jeopardize essential state services funded by income tax.

Neva Butkus from the Institute on Taxation and Economic Policy highlights that income tax makes up a significant part of Mississippi’s revenue. Reducing it could lead to budget shortfalls affecting schools, healthcare, and other crucial services.

### Kentucky’s Approach

In Kentucky, lawmakers passed a law in 2022 to decrease the income tax rate and establish conditions for future reductions. However, unlike Mississippi, the General Assembly must approve each step of the way, making it a slower process. Kentucky has just approved tax cuts that will lower the rate to 3.5% starting in 2026. The current governor expressed concerns about these changes, feeling that lawmakers have shifted the goalposts regarding how taxes would be managed.

### Trends in Other States

New Hampshire and Tennessee have already had minimal income taxes, and both recently eliminated taxes on interest and dividends. Other states, like Oklahoma and Missouri, are also considering tax repeals, with Oklahoma proposing legislation to cut income taxes to zero if their revenue goals are met.

Overall, the movement to eliminate income taxes is gaining traction, but each state’s approach and potential impacts vary. As the landscape evolves, it’s clear that the future of income taxation will continue to be a significant topic of discussion across the country.



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