HB 1, titled the “Build Up Mississippi Act,” is a broad tax-and-budget package that combines phased individual income tax cuts with new or increased consumption and fuel taxes, while also restructuring several state and local revenue distributions. The bill lowers the top income tax rate on taxable income above $10,000 from 4% in 2026 to 3.75% in 2027, 3.5% in 2028, 3.25% in 2029, and 3% in 2030, with an additional automatic reduction mechanism beginning in 2031 if the state’s reserve fund is fully funded and revenue growth exceeds specified thresholds. It also provides that if the income tax rate on income above $10,000 is eventually reduced to zero, the individual income tax would be repealed.
To offset the income tax reductions and fund transportation and local infrastructure, the bill raises the sales tax on retail groceries to 5% beginning July 1, 2025, and increases gasoline and special fuel excise taxes in stages from 18 cents per gallon to 21 cents, 24 cents, and 27 cents, followed by indexing to the National Highway Construction Cost Index. The measure also revises how gasoline, special fuel, sales tax, and use tax revenues are distributed, including changes to state highway, county road, municipal infrastructure, education, and other special funds. It further authorizes municipalities to use certain use-tax distributions for acquisition or rehabilitation of buildings, not just roads, streets, bridges, water, sewer, and drainage projects.
The bill also creates a new Public Employees’ Retirement System tier for employees who join on or after March 1, 2026. That new tier combines a defined benefit component with a defined contribution component under Section 401(a) of the Internal Revenue Code. New members would contribute 9% of earned compensation, with 4% going to the defined benefit annuity savings account and 5% going to the defined contribution account; employers may also make additional contributions within federal limits. The new tier changes retirement eligibility, average compensation calculations, cost-of-living treatment, partial lump-sum eligibility, unused leave credit, and related survivor and disability rules, and it also limits membership in the Supplemental Legislative Retirement Plan to legislators elected before March 1, 2026.
The bill’s impact on state law is extensive: it amends multiple tax, revenue-distribution, and retirement statutes, creates new statutory definitions and funding formulas, and sets different effective dates for the tax provisions and the retirement provisions. It also repeals a provision governing optional retirement program administrative deductions and revises the optional retirement program contribution structure for higher education employees. In practical terms, the bill shifts the tax burden away from income and toward groceries and fuel, while redirecting revenue to transportation, local infrastructure, education, and pension funding.
The general sentiment reflected in the voting history was favorable but not unanimous. The House passed the bill 88-24, the Senate passed it 32-16, and the House later concurred in the Senate amendments 92-27, indicating substantial bipartisan support but meaningful opposition in both chambers. The main points of contention appear to be the tradeoff between income tax relief and higher sales and fuel taxes, the decision to tax groceries, and the retirement-system changes for future employees, especially the move to a hybrid plan with reduced benefits and fewer legacy-style retirement features for new members.
HB 1 amends Mississippi’s income tax, sales tax, fuel tax, use tax, municipal sales tax, highway revenue distribution, and public retirement statutes. It lowers the top marginal income tax rate over several years, adds an automatic future reduction trigger tied to reserve-fund status and revenue growth, imposes a 5% sales tax on groceries, increases gasoline and special fuel excise taxes, and revises how those revenues are allocated among state, county, municipal, education, and transportation funds. It also creates a new PERS tier for employees entering on or after March 1, 2026, with a hybrid defined benefit/defined contribution structure and revised benefit rules, while limiting certain retirement-plan benefits for new members and ending some legacy administrative provisions.
The bill appears to have been generally supported by legislative majorities, but with notable opposition. It passed the House 88-24, the Senate 32-16, and then the House concurred in Senate amendments 92-27. Those margins suggest the measure was viewed as a major fiscal package with enough support to advance, but also one that drew substantial concern from members who opposed its tax mix, grocery tax, fuel tax increases, or retirement changes.
The most likely points of contention were the bill’s combination of income tax cuts with higher sales and fuel taxes, especially the new grocery tax, which is politically sensitive because it affects all consumers and is often criticized as regressive. Another major issue was the retirement overhaul: the new PERS tier reduces future benefits, changes vesting and compensation calculations, eliminates some features such as COLAs for the new tier, and bars partial lump-sum distributions for new members. Local governments, employees, retirees, and taxpayers are the main affected groups, and the debate likely centered on whether the package fairly balances tax relief, infrastructure funding, and long-term pension sustainability.