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Tax Threat 1: Aging Population, Diminishing Resources

May 13th, 2015

MEPC recently released a report on 5 Threats to Mississippi’s Tax System. The first threat outlined in the report is the state’s exemption of all retirement income from taxation. By 2030, one in five Mississippians will be over age 65. This population shift, combined with the exemption for retirement income, will erode Mississippi’s income tax revenue. The loss may be amplified by increases in the costs of providing services to an aging population. The exemption was added to the tax code in 1994 and applies to all, regardless of the amount or type of income a retiree receives. This exemption costs the state over $340 million annually; the lost revenue has already increased by more than 50% in the last five years. If this trend remains unchecked, it could put a significant strain on the state’s ability to support schools, health care and other necessities for years to come. When the exemption was enacted, it was touted as a way to attract retirees to the state. However, income tax breaks are not effective at attracting seniors. Mississippi is one of only five states that exempt all federal, state, and local pensions as well as most private retirement income. Many states provide exemptions that are less broad and based on income levels, phasing the exemptions out as incomes rise. This avoids putting a burden on low-income seniors. Alternatively, taxes could be raised elsewhere to make up for the lost revenue.

Sara Miller

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