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Well-intentioned tax cuts destined to tank economy

For Better or worse, Mississippi Republicans are fulfilling their promises to cut state government. This is a dramatic change from the doubling each decade since 1990.

Based on the annual reports from the Joint Legislative Budget Committee, total state spending grew 124 percent from 1990 to 2000, 99 percent from 2000 to 2010, but only four percent from 2010 to 2018. That’s a huge shift.

In other words, after two decades of doubling in size, the growth of state government has come to a screeching halt since the Republicans booted out the Democrats as the dominant party in the state.

This year is the most dramatic of all: Not only did the state government not grow, but it shrank about five percent. This is completely unprecedented in recent history.

When discussing the state budget there is an important distinction to make. There is the general fund and total state spending. The general fund is the money that the legislature has direct control of through taxation. Total state spending includes federal grants and special purpose funds such as the state gas tax. Total state spending was $20.5 billion dollars this year. The state general fund was $5.6 billion — only one fourth as much.

 Most of the huge growth in government spending from 1990 to 2010 came from the federal government’s contribution, but the general fund rose dramatically during that time period as well.

Total state spending in 2010 was 347 percent higher than 1990. A 100 percent increase would be double, so a 347 percent increase is more than four times more government spending. During that time period the general fund budget rose 157 percent, more than double the spending.

This was a good time for Mississippi. Federal dollars were pouring into the state. The population was growing at a healthy rate. Globalization had not kicked in and Mississippi labor rates were attracting factories. During this 20-year time period, per capita income rose 130 percent — twice the rate of inflation.

Things have turned around radically since 2010. Since then, per capita income is up 19 percent, barely above the 16 percent increase in inflation.

Even more dramatic is that from 2010 to 2018, total government spending is only up four percent, less than a third of the increase in per capita income.

In other words, as a percent of per capita income, total state spending has decreased over the last eight years. This is a big change. From 1990 to 2010, total state spending was increasing at a rate two to three times faster than the per capita income.

There is yet another big change since 2010. In the previous two decades, federal funds flowing into Mississippi increased far faster than the state-generated general fund. Now that has reversed. The general fund has increased 13 percent since 2010 while total state spending (mainly federal money) has only increased four percent.

The effect (or cause) of this has been a sharp decline in our population growth, which is up only one percent since 2010. That’s the lowest growth rate in over 50 years. From 1990 to 2000, Mississippi population grew at a healthy 10 percent.

The runaway spending from 1990 to 2010 probably spurred the anti-tax backlash that led to the Republican party dominating the state legislature in 2011. The problem is that Mississippi gets three dollars in federal funds for every one dollar in federal taxes paid. That means a tax-cutting binge, however well intended, is destined to tank the state economy. That appears to be exactly what has happened.

This past year was the most amazing with an actual $252 million cut in the general fund. That’s a cut of nearly five percent in one year. Coming after two decades of rapid government expansion, that is an earth-shaking change.

Declining to expand Medicaid to the working poor is a classic example. If the Mississippi state legislature was still controlled by the Democrats, it would have jumped at the chance to get an extra billion in federal dollars with almost no contribution from the state.

But not so the Republicans. They have turned down a billion dollars a year in federal Medicaid money because they aren’t ideologically opposed to expanding social programs. This may be sound ideology for the nation in the long term, but it is terrible for our state in the short term. I call this “falling on your ideological sword.”

Mississippi is a small state and people know each other. As a result, welfare abuse is readily apparent and known. This creates a lot of anger that has led to the anti-tax, anti-welfare attitude among a majority of voters. Work dis-incentives inherent in existing welfare policy is one reason Americans are becoming so anti-welfare.

Cutting welfare programs and expanding the Earned Income Tax Credit, which gives tax rebates only to those who actually work, would be a much better public policy.

This is ironic in the case of Medicaid expansion, which would allow people who are actually working to get some benefits. As it stands now in Mississippi anyone who has a job will make too much money for Medicaid.

Column by Wyatt Emmerich