‘Faith-Based’ Economics vs. Actual Math


Publisher Todd Stauffer

Here's what I don't get: When the Republican supermajority in the Mississippi Capitol looked at the lower-than-expected revenues of the past fiscal year, resulting in mid-year emergency budget cuts and a dip into the rainy-day fund, they said to themselves the most obvious thing that occurred to them: "Let's cut taxes."

It's a moment when you can clearly see what I call "faith-based economics" overwhelming even the most basic back-of-the-envelope arithmetic. If you've got a problem with red ink in the budget then the solution is: (a) salute the photo of Ronald Reagan on your wall (b) reposition your American Legislative Exchange Council tie-clip and (c) march into the halls of government to create more red ink.

Enter Senate Bill 2839, which seeks to eliminate the corporate franchise tax and cut income-tax revenues.

Cutting franchise taxes is a major priority of ALEC, the ultra-conservative anti-taxation group to which so many conservative legislators swear fealty. ALEC graded Mississippi relatively poorly last year because they couldn't get the franchise tax cut through.

To be fair, there is an argument that franchise taxes are weighted against businesses in capital-intensive industries versus corporations that make significant money in data or services but pay lower franchise taxes. (At least all companies pay a minimum franchise tax, which is more than you can say for corporate income taxes.)

That said, the Mississippi franchise tax brings in about $240 million annually to the state's coffers. And killing franchise taxes—when they're about 45 percent of the money that's brought in from corporations—doesn't make a whole lot of sense when you're not going to balance those cuts with revenues from other sources.

Why? Because businesses don't just need to see a low tax burden to consider locating in Mississippi—they also need some sort of infrastructure to support that business and its employees.

That's the math I'm talking about.

The logic that supports the tax cuts is once again "trickle down" in nature—cutting taxes will supposedly create jobs such that the lost tax revenue will be made up by increased spending that will then be taxed (regressively) via the state sales tax.

The problem is, ideologically driven lawmakers don't really seem to care whether any of that is actually true.

The one report legislators are using to support this theory reads like a brochure for the idea, putting some relatively bizarre math in the best possible light.

That might not be surprising considering that the report was commissioned by the Mississippi Manufacturers Association—a group that cuts a lot of checks for conservative legislative campaigns and was a major funder for anti-Initiative 42 politicking last year. The MMA's logo is the only one of the front page of the report, suggesting at least ownership, if not full authorship. (The back page gives credit to Mississippi State's NSPARC, which pulled the report together.)

The MMA-commissioned report found that eliminating the franchise tax completely in 2016 (which SB 2839 does not do; the actual bill is a phase-out) would create a whopping 3,514 additional jobs in the state by the year 2025.

Here's what that report is saying: If the franchise tax generates around $240 million per year in revenues, then over nine years, that's about $2.16 billion in revenues. That is more than $614,000 in lost revenue per job. It's not exactly the most promising investment, particularly when you ask yourself whether we might benefit even more from $2.16 billion worth of education or infrastructure or poverty-fighting—or, heck, even corporate welfare—over that same time period.

The report very specifically doesn't measure any other changes in the tax code, despite the fact that those changes are right there in SB 2839. As a result, it's only so helpful in understanding the landscape of future revenues for Mississippi. Most likely, tax revenues will be even lower than the report forecasts because income-tax revenues would also be lowered under SB 2839.

While the GOP spends a lot of time talking about "tax-and-spend" folks on the other side of the aisle, a wave of "tax-cut-and-still-spend" policies have hurt states with Republican majorities in recent years.

Louisiana is in the middle of a full-blown fiscal crisis thanks to tax cuts and a habit of using one-time windfalls to pay ongoing expenses. In Kansas, low state revenues are starving schools and municipalities, leading to higher property taxes and other even more regressive measures by localities to make up the difference. Oklahoma, Illinois and North Carolina face similar challenges according to the Hope Policy Institute.

Even if we did decide it was imperative to cut the franchise tax because it's a looming monster of a business-killer in the state, simultaneously lowering personal income tax revenues and doing nothing to augment corporate income-tax revenue is fiscal madness.

Sometimes there's a "canary in the coal mine" moment, like this week when state Rep. Karl Oliver told a Mississippi taxpayer that he "could care less" (meaning, of course, that he couldn't care less) about her concerns over Mississippi legislative and budgetary priorities.

I believe him, because he and many of his colleagues serve what they might call "higher powers" than their constituents.

JFP reporter Arielle Dreher revealed that Oliver's campaign, for instance, was bank-rolled by the PACs of the Mississippi Manufacturers Association, Mississippi Homeowners Association, Mississippi Realtors Association, Koch Industries, plus some banking and payday-lender interests. (See jfp.ms/lobbyists to view Oliver's donation reports, and more on page 27 in this issue.)

Many of those same PACs and associations come up again and again as you look through the reports of Mississippi's lawmakers and anti-education-funding groups.

What is the solution? We need to keep reminding lawmakers that they can't just rely on "faith-based economics"; they need to actually do the math (and show their work). The fiscally responsible thing to do is balance the tax burden and investments in infrastructure, education and health care.

Running the state's economy aground over ideology—and "caring less" about the people who live here—won't make it a more prosperous state. It'll just make things worse in the future.

Todd Stauffer is the president and publisher of the Jackson Free Press.


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