As Population Ages Mississippi’s Retirement Income Exemption Will Threaten State Revenue

October 13th, 2011

Over the next twenty years, the US population of people over 65 is expected to increase. In Mississippi that it is projected to increase so that in 2030, one in five Mississippians will be over 65. The US Census Bureau data in the figure below shows the projected percentage of the population over 65 in five year increments from 2000-2030.

Percent of Population 65 and Older in United States and Mississippi 2000-2013

This population shift will affect Mississippi’s income tax revenue due to an exemption for retirement income. The exemption was added to the tax code in 1994 and exempts all retirement income (both public and private). The exemption applies regardless of the amount of retirement income a taxpayer receives. The exemption currently costs the state over $300 million annually. If it remains in effect, it could put a significant strain on the state budget in the years to come. It may cause revenue increases in other areas or detrimental cuts due to the loss of revenue. The loss in revenue may be amplified by any increases in the costs of providing services to an aging population.

In order to mitigate the loss in revenue without putting a burden on low-income seniors, the exemption could be phased out at higher income levels.

Over the next several months, we will be profiling potential threats to the state’s revenue collections. Stay tuned for more areas that are in need of updating to keep up with the changing environment.

Source: MEPC analysis of data from the US Census Bureau and US Administration on Aging