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POLICY INSIGHT
BEYOND THE NUMBERS

Mississippi Credit Downgrade Sends a Warning to All States About Cutting Taxes

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S&P Global Ratings lowered Mississippi’s credit outlook from stable to negative amid concerns about phased-in tax cuts, slowing revenue growth, and debt held by the state’s pension plan. Mississippi is currently the only state in the country with a negative outlook. But the downgrade sends a warning to other states that have recently made or are considering deep tax cuts.

Mississippi cut personal taxes starting in 2024. This tax cut will result in nearly $2 billion in lost revenue over the next five years. Yet Gov. Tate Reeves has already called for legislators to take further action and entirely eliminate the personal income tax, which generates about 30 percent of the state’s general fund revenue.

Bond ratings determine the cost states pay to borrow for water and transportation projects as well as other infrastructure needs. Lower ratings mean states have to pay higher interest rates. This in turn means states must either spend more to finance infrastructure projects or scale them back.

If Mississippi continues down this fiscally dangerous path and credit agencies downgrade the state’s bond rating, it will cost Mississippi millions more to complete urgently needed infrastructure upgrades. In the capital city of Jackson, for example, 145,000 people still lack reliable, clean drinking water while they wait for improvements to the city’s water system.

It can take years to reverse a bond rating downgrade, creating long-term challenges for states facing overdue investments in communities. For example, it took six years for S&P to raise Louisiana’s bond rating to stable after bad state financial decisions — including tax cuts — led to a downgrade in 2017.