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As I See It

Solution to state’s budget woes mustn’t include tax hike

Every April, all across the land, there is the sound of gnashing teeth and cries of anguish. It’s tax time again! We are now called to account for what we made last year even though, likely, we really can’t remember what we did with it.

The vast majority of Americans satisfy their tax obligations the painless way, by having it withheld from their salaries. They’re fleeced so subtly they don’t feel a thing. For others of us, the sting is more real and personal.

We pay quarterly tax estimates and then settle-up with the IRS in April. We’re acutely aware of our personal fleecing since we actually get to hold the money and then have to write the IRS a check out of our own bank account. Ouch!

Wrapping up the session

The Legislature is scheduled to conclude its business for the year around April 1st. Chances are legislators will have completed their work and gone home by the time you read this column, although talk of an extension or even a special session persists.

The state also has an almost painless way to fleece the taxpayers for most of the tax revenue they collect. It’s the sales tax. It’s added onto most everything we buy, and we are so accustomed to paying it that we automatically think, “plus tax.”

Many believe that the sales tax is an unfair, disproportionate burden on the poor since, as the theory goes, the rich invest most of their money and the poor spend all theirs on things that are subject to the tax. Nonetheless, we have been brainwashed into paying sales tax without batting an eye.

Both the federal and state governments are in budget trouble. Our federal government is deeply embroiled in fighting a war in Iraq and other places plus suffering from a balance of trade deficit. Federal money is in short supply.

Here at home, assuming that the Legislature didn’t find an 11th hour cure for our financial woes, the budget situation is also iffy. As everyone already knows, the Legislature has been consistently spending more than it should for a number of years and subsidizing the shortfall with one-time money taken from various state agencies and transferred to the general fund. Both governments are in a financial mess.

There is one difference, however, between how state governments and the federal government address financial problems. If the feds run short, they simply print up some more money or borrow money and keep spending away. Somebody’s got to pay the piper, but it won’t happen during the current term of Congress and that’s all that matters.

The state, however, must show, at least on paper, that its books are balanced every year. Without the ability to borrow money for general operations or print more money, the state is placed in a desperate position. Of course, the Legislature can inflate their revenue estimate and force the governor into cutting expenses later when the projections don’t materialize. That makes him look like the bad guy and the legislators get to criticize him for laying off state workers and underfunding education. Unfortunately, perhaps, they’ve already used that trick over the past few years and can’t fool us so easily again.

Still fumbling

At the time of writing, the Legislature is still fumbling around waiting to be rescued from doing the job they were elected to do. The largely ignored elephant sitting in the living room is that the Legislature has promised more in Medicaid benefits than we can pay. The problem is so huge that there’s no hope of solving the state’s financial problems without solving Medicaid. And, raising taxes (which I hope the Legislature hasn’t done) is not the answer.

With one of every four people in Mississippi receiving Medicaid benefits, we simply can’t afford to continue the program as it is now structured. The answer is simple, even to the simple-minded among us. Medicaid benefits have to be cut. And, I mean cut a lot. I mean some really deep cuts that will result in far fewer than one in four Mississippians getting their healthcare paid by the taxpayers. There is no other answer and we might as well face the music.

Planning for the unknown?

What can we learn from the financial situation we find both our state and national government in?

For one thing, wars can’t really be completely planned and scheduled. Whether we should rescind the tax cuts to pay for the war requires a more sophisticated understanding of economics than I possess.

However, I know that tax cuts are economically stimulating and cutting them out may cause more economic havoc than just weathering the storm and waiting for better days.

Painful but quite clear

The Medicaid situation is easier, albeit very painful, to solve. Let’s give credit where credit is due.

Truthfully, I don’t think the cost of Medicaid was really susceptible to accurate estimate when the program was expanded several years ago.

However, now that we know the cost and that we can’t pay it, it’s time to ‘fes up and admit that we made a mistake and correct it. It’s not going to get any easier and it’s really better to modify the benefit schedule and let folks get started planning how their going to get on with their lives.

Thought for the Moment

If I’d known I was gonna live this long, I’d have taken better care of myself. — pianist and composer Eubie Blake (1883-1983)

Joe D. Jones, CPA (retired), is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.

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