Ask any accountant, “How do you increase the bottom line?” The answer will always be one of two things. You either increase revenue or you decrease expenses. To increase your bottom line without one of those options is to defy the laws of bookkeeping. It can’t be done.
As legislators pore over the State budget, they have opted for the latter option — decrease expenses — so much so that there are cries from agencies far and wide about their tightening belts and the loss of services to citizens and loss of competitiveness to outside entities.
So, it was a surprise to see that the legislature is now attacking the budget from the other side, through revenue. No, they don’t plan to increase revenue by raising taxes or levying fees. Instead, they plan to CUT revenue by reducing taxes on a multitude of businesses.
Gov. Bryant says, “I think when you cut taxes, you actually make money.” He THINKS!
There are plenty of examples out there of states and municipalities offering business all kinds of tax breaks and subsidies to attract economic activity. The results are mixed. As more and more states rush to portray themselves as “pro-business” by cutting the bill to conduct operations, businesses find themselves in the happy spot of a rush to the bottom line — theirs that is.
If Mississippi cuts business tax, then won’t Alabama and Louisiana follow suit? And if business can easily move across state borders to the lowest point, won’t they? And what happens when breaks disappear through a sunset clause? Won’t they just shut their doors and move to the next location? And aren’t we just shooting ourselves in the foot with all this “business friendly” tax policy?
Louisiana created a tax break to encourage gas production. In 2007, that cost to the state was $285,000. In 2010, that cost ballooned to $239 million. Did the accompanying economic boost offset these costs? No one seems to know.
With states around us jumping on the tax break wagon for business, shouldn’t we be studying the effects of such activity? Before we rush to enact policy, shouldn’t we have our facts straight about what really works and what we just THINK might work?
Lt. Gov. Reeves supports breaks “when long-term benefits outweigh costs.” So how about being smart about our business friendly policies? We have plenty of examples from which we can learn. Let’s be business friendly without giving away the farm.
» Nancy Lottridge Anderson, Ph.D., CFA, is president of New Perspectives Inc. in Ridgeland — (601) 991-3158. She is also an assistant professor of finance at Mississippi College. Her e-mail address is firstname.lastname@example.org, and her website is www.newper.com.