In a move that may alter the way Americans are taxed at the state levels, Mississippi and Kentucky have launched optimistic plans to eliminate personal money taxes—something no US state has done in more than four years.
The next time this happened was in 1980, when oil-rich Alaska scrapped its earnings taxes. Then, with budget deficits following the Covid-19 epidemic and a nationwide trend toward tax reduction, the heavy South is aiming for a duplicate.
The Mississippi trial
Governor Tate Reeves of Mississippi has signed into law a roadmap to phase out the state’s 4 % income tax—starting with a drop to 3 % by 2030, followed by conditional cuts tied to revenue growth. If all measures are met, Mississippi had become income-tax gratis by 2040. The program also includes a income tax split on shopping and a hike in fuel taxes.
” This puts us in a unique group of aristocracy, competitive state”, Reeves said, referencing money tax-free state like Florida and Texas. ” We have the potential to be a magnet for chance”.
But the program comes with higher bets. Mississippi remains one of the poorest state in the country and greatly depends on federal money. Critics say losing income tax income could ruin public service if federal help is reduced.
” This is a large percentage of what the status brings in to account institutions, health care, and other requirements”, warned Neva Butkus of the Institute on Taxation and Economic Policy.
Kentucky’s more careful way
Kentucky, also, is eyeing zero money tax—but with a slower, more hands-on method. A 2022 legislation allows income tax cuts merely if profit meets specific goals and the state government approves each stage.
The income tax is set to fall to 3.5 % in 2026. A second new law allows smaller cuts even when revenues fall short of larger goals —something Democratic Governor Andy Beshear criticized as a “bait-and-switch”.
Despite his fears, Beshear signed off on the 2026 tax split, while letting the next bill become laws without his name.
The bigger pattern
Mississippi and Kentucky join a growing group of state challenging classic tax designs. Oklahoma lawmakers lately advanced a bill to clean out revenue fees based on income triggers. Missouri is weighing a capital increases deduction. And states like New Hampshire and Tennessee have just eliminated levies on dividends and interest.
But authorities say wiping out income taxes after years of dependence is much harder than not adopting them at all.
” It’s a lot easier if you’ve never levied one”, said Katherine Loughead of the Tax Foundation. ” When you rely on that income, phasing it out is significantly more difficult”.
With financial sky looming—from Trump-era tax conflicts to possible federal funding reduces —states may quickly find out whether their tax-cutting bets pay off or keep them in a fiscal shortage.
