Local Government at Risk from Online Sales, Store Closings

Stagnant tax policies and anti-tax fervor coupled with the Legislature’s inattention to changing business patterns will play havoc with local government financing over the coming years. 
Here’s the backdrop.
Municipal finances depend heavily on sales taxes that the state collects and shares with communities where the sales occur. Growing online sales by Amazon, Wal-Mart, and other major retailers take sales away from local stores. And even though Wal-Mart and other retailers with physical presences in the state collect taxes for online sales, the state defines these as “use” taxes and does not share them with municipalities.
From FY 2011 through FY 2016, sales tax diversions to municipalities grew an average of 3.1% each year. However, from FY 2016 through FY 2017, total diversions hardly increased, up just 0.4%. At the same time, in the first quarter of 2017, Wal-Mart online sales jumped 63%. For the first five months of FY 2018, total diversions increased just 0.3%, while Amazon sales surged, growing to 43% of the e-commerce market.
Legislators’ lack of interest in giving municipalities a share of use taxes was evident at the start of the new legislative session. On session’s second day, the House Ways and Means Committee approved a bill that would spend use taxes collected from companies like Amazon on road and bridge repairs.
Reflect on this for a moment.
The expert from the conservative Tax Foundation brought in by legislative leaders to provide guidance on “tax reform,” told legislators costs for road and bridge building and maintenance should be paid for with fuel taxes, i.e., those who use roads and bridges should pay for them. Short-sighted anti-tax fervor has so far killed all efforts to boost fuel taxes, leaving browbeaten legislators no choice but to rob other funds for much needed road and bridge repairs.
Sigh. There’s more.
Surging online sales are also beginning to impact city and county property taxes as more and more retail outlets close. This is a double whammy for municipalities as they lose both sales and property taxes. Fung Global Retail & Technology tracks retail store openings and closings. In 2017, it reported 6,985 store closures nationally, up 229% from the prior year. Recent closures impacting Mississippi include Bed, Bath and Beyond, Sears, JC Penney, Payless, Winn-Dixie, Kroger, and Gander Mountain. Even Wal-Mart is closing stores as online sales increase.
Analysts expect much worse. Bloomberg linked the impact of growing online sales on brick and mortar retailers with increasing retail bankruptcies and problems with store credit cards to forecast a “retail apocalypse.” Credit Suisse forecast “a wave” of retail store closings and bankruptcies in early 2018. Those are pretty bleak forecasts given that store closings in 2017 almost surpassed the all-time high from the 2008 financial crisis.
Of course, billionaire investor Warren Buffett anticipated this trend in online sales and cut his investments in brick and mortar retailers. We can’t expect state government to be as savvy about the future as Buffett, but we should expect them to catch on when the writing is on the wall.
Fast changing business patterns have dire implications for traditional local government financing. Stagnant tax policies, which are totally under control of state legislators, need to be modernized and reformed with regard to local government.
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New Year Economy Pivotal for Republican Leaders

The New Year promises to be a pivotal year for Republican leaders in Mississippi. With “job creation” tax cuts in place at both the state and federal levels, voters will be looking for Mississippi’s moribund economy to take off.

But, that’s not what Mississippi’s state economist Dr. Darrin Webb forecasts.

“Mississippi’s growth will not catch the national growth” in the near future, he told the Legislative Budget Committee in November. “That is not likely to happen.”

As reported in the Northeast Mississippi Daily Journal, Webb told legislative leaders that Mississippi’s economy continues to lag that of the nation and will do so for the foreseeable future. “As you know, the state has struggled to gain momentum since the recession of 2008,” Webb said. “It seems we take one step forward and two steps back.” He said the state’s “real” gross domestic product (GDP), the total of everything produced in the state, is lower now than it was in 2008 before the so-called Great Recession.

At the state level, Gov. Phil Bryant, Lt. Gov. Tate Reeves, and House Speaker Philip Gunn, all Republicans, have said business tax cuts enacted over the past several years will stimulate the economy and bring growth. At the federal level, Sen. Thad Cochran, Sen. Roger Wicker, Rep. Trent Kelly, Rep. Gregg Harper, and Rep. Steven Palazzo, all Republicans, have said the big cuts in federal corporate taxes they helped pass will stimulate Mississippi’s economy.

Despite the positive rhetoric, Bryant, Reeves and Gunn must agree with Webb that not much economic growth will occur in the near future. They agreed to a revenue projection for state government for the upcoming fiscal year that is below this year’s level. Then, the Legislative Budget Committee adopted a “bleak” budget recommendation that cuts most state agencies, “which are already reeling from several planned and unexpected budget cuts the past three fiscal years,” reported the Clarion-Ledger.

It’s these cuts, not the tax cuts, that have the attention of economic developers. As one conservative developer told me, “underfunding education, infrastructure, and health care hurts” development.

That aligns with what the state economist told legislative leaders – Mississippi faces economic headwinds because its workforce is less educated and less healthy than those in other states. “I believe the only thing we can do for Mississippi to be more competitive is for our people to be more competitive,” Webb said.

The Mississippi Economic Council sees infrastructure shortfalls hurting Mississippi’s competitiveness. “Every business relies on the road surface transportation system,” MEC interim president Scott Waller told the Mississippi Farm Bureau. “If you can’t move your crops, livestock, and machinery because a bridge can’t support the weight, and you have to find a different way to go, it costs you time and money.”

Since the recession in 2008, Mississippi’s GDP has grown just 1.7% compared to national GDP growth of over 14% and neighboring state GDP growth of 16%.

All this makes 2018 the year to watch for Mississippi politics. Will Republican leaders’ investments in business tax cuts pay off and spur economic growth? Or will their lack of investment in education, infrastructure, and health care hold Mississippi back?

Happy New Year!

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The Real Stuff of Christmas

Christmas morning for the kids is such a happy time as they exclaim over all kinds of stuff under the sparkling tree or poking out of gaudy stockings.

The Christmas season is a miraculous time for retailers. More and more businesses are saved by shoppers buying Christmas stuff every year.

Of course, the real miracle of Christmas is not about stuff. Just the name “Christmas” tells us that. It comes from the Old English words Crīstes mæsse, meaning Christ’s mass, the festival celebrating the birth of Christ.

The piles of circulars that make newspapers terribly heavy this time of year and the incessant Internet and TV ads don’t focus much on the Christ part of Christmas. They’re all about merchandising stuff. That’s part of the trend by merchants, government, and the irreligious to emphasize the festive part of Christmas and de-emphasize the Christ part, e.g. Happy Holidays vs Merry Christmas.

For too many, Christmas has become all about stuff and good times. Interestingly, secular festivities have competed for ascendancy during the Christmas season since the Fourth Century. The early church celebrated the baptism, death and resurrection of Jesus, but not His birth. Some church historians say the celebration of Christ’s birth came about to draw people away from pagan festivals that occurred about the same time – the German yule festival and Celtic solstice legend of Balder are cited at Christianity.com. Then there was Saturnalia, the pagan festival when Romans feasted and gave gifts to the poor.

Nonetheless, the festival celebrating the birth of Christ is intended to include a healthy portion of worship, giving thanks to God for the birth of His only begotten son, joining in Christian fellowship, and singing His praises.

With strong forces dimming the true meaning of Christmas, it’s up to churches and families to keep this balance alive. Your pastor has probably urged you to better balance your secular stuff with the real stuff of Christmas.

For example, balance those smiles of joy on Christmas morn from opening stuff with smiles of joy from the carols and fellowship of Christmas, smiles from hearing the story of Christmas told once more, or tears from the Christmas family blessing lifting Jesus up.

Or how about giving prayers along with or without stuff? A beneficiary of prayer myself, I know my neighbors, friends, and family members will benefit far more from prayer gifts than any stuff I could give them. Indeed, there is great joy in prayers answered for the health and well-being of friends and family members…Tom, Jamie, Roger, Sid, Bob, Jan,  Sharon, and babies Sawyer, Isaac, Owen, and Daisy to name a few. His angels have been so busy.

Or how about giving stuff and prayers as acts of charity? There are those who truly need stuff to survive as well prayers for a better future, e.g. the refugees and victims of disaster, war, poverty, and pestilence.

Enjoy the blessings of Christian joy this Christmas. I pray our Lord of mercy and love will send His guardian angels to protect, comfort, and heal you.

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Early Interventions Could Lift Mississippi Off Bottom

What one thing could Mississippi do to have a more competitive workforce, a healthier population, more college graduates, fewer welfare mothers, better school performance, fewer special needs children, less drug usage and pay for itself seven times over?

Improve cognitive development in at-risk children right from birth.

Sound too good to be true?

Science says otherwise. It has to do with neurotransmitter changes (such as serotonin and dopamine levels), synaptic pruning as a function of experience, gene activation associated with experience, and social transactions.

Say what?

Well, cognitive development deals with fundamental brain skills that enable children to think, read, learn, remember, and pay attention. From these fundamental skills, children develop their capacities to speak, understand, calculate, interact, and deal with complex systems.

Long-term research has now shown two things conclusively: 1) cognitive abilities get firmly set based on what happens to children during their first weeks and months after birth; and 2) targeted early interventions can make a profound difference.

This research has been the life work of Drs. Craig and Sharon Ramey. Leaders in Meridian and other communities will remember the early childhood development work the Rameys did in Mississippi in the 1990s. At that time they were pioneering brain development research at the Civitan International Research Center at the University of Birmingham. Now distinguished research scholars and practitioners at the Virginia Tech Carilion Research Institute, the Rameys have pulled together over 40 years of scientific research and tracking to irrefutably show that “cognitive disabilities can be prevented in early childhood.”

They presented their findings last week at the first of a series of presentations sponsored by the University of Mississippi Graduate Center for the Study of Early Learning. Entitled “Investing in High Quality Early Childhood Education Yields Economic Returns,” the series will also feature Dr. James Heckman, Nobel Prize winning economist at the University of Chicago, whose analysis shows the economic returns, and Dr. Pat Levitt, WM Keck Provost Professor of Neurogenetics at the Keck School of Medicine of the University of Southern California, whose research shows how genes and environment together influence typical and atypical brain development.

Significant impacts for early interventions include leveling the playing field in educational performance for at-risk children, improving their college going rates by four to one, reducing their use of public assistance by five to one, and improving their average earnings by 50%.

The cost-benefit analysis by Dr. Heckman of these targeted interventions showed a 7.3 to 1 return on investment by adulthood.

“The health, education, and well-being of children forecast the future of communities and states,” said Dr. Craig Ramey. “If we don’t get a significant sector of the population started early, it is hard to make a difference later.”

So, Mississippi do we want to grow a more productive workforce, smarter kids, and more college graduates while reducing welfare dependence, school retention, and special needs demands? These are real outcomes that would lift Mississippi off the bottom of so many national rankings.

Science is telling us what to do and that the economic payback will be terrific.

Are we in or out?

To read about the research visit https://static.vtc.vt.edu/media/documents/Supporting_Adaptive_Brain_and_Behavior_Nov_30_talk_final.pdf.

To learn more about upcoming speakers contact Dr. Cathy Grace at cwgrace@olemiss.edu.

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Will Republicans Fumble the Ball to Chuck and Nancy?

Despite Republican leaders’ wayward fall from debt frugality into tax cut frivolity, shifting teams now to Chuck and Nancy would be a fiscal calamity. “Chuck and Nancy” is a Trump euphemism for Senate Minority Leader Chuck Schumer of New York and House Minority Leader Nancy Pelosi.

Republicans deserve criticism for abandoning their long held top priority to reduce deficits and debt in order to pass deficit-busting tax cuts. But Chuck and Nancy have never made deficit and debt reduction a priority.

Certainly, Democrats think Republican tax gifts to big corporations and the wealthy will sweep them into power next year. But with Chuck and Nancy at the helm, that’s unlikely. Democrats’ pathway to victory requires a convincing appeal to the centrist Americans that Republicans have abandoned, i.e., a surge toward moderation. That’s not the political position New York and California Democrats like Chuck and Nancy espouse.

As one long-time Mississippi Democratic officeholder told me recently, “It seems that there are no people in Congress who put the country above party. The whole goal of both parties is power. Link that to campaign contributions. A pox on all their houses!”

He’s not alone.

“I have lost all hope of any real fiscal reform or responsible governance,” one of my more conservative, military retiree friends said. “I truly believe that our pols have realized that $20.2 trillion is not going to be paid back, or even paid down… ever!  As the owner of the printing press of the world’s reserve currency, they have decided to optimize the climate for business or possibly a loftier goal of elevating the standard of living to the highest level possible (measured in big screen TV size) for the longest period possible.“

Hold on. It appears Republican leaders are now admitting economic growth won’t generate enough revenue to pay for their big tax cuts and talking tough about spending cuts. Their plan, however, may be the sort of miscalculation that actually puts Chuck and Nancy in the game.

“Let’s cut Social Security to pay for tax cuts for corporations and the wealthy.” Sound like a smart strategy to you? That story is building.

“Florida Senator Marco Rubio admits that the Republican tax cut plan, which benefits corporations and the wealthy, will require cuts to Social Security and Medicare to pay for it,” reads a Newsweek story.

“Republicans are making no secret of their plans to go after these critical retirement programs,” says a Reuters story. “It is the flip side of their plan to expand the federal deficit by $1.5 trillion through tax cuts for corporations and the wealthy. Cutting spending by these programs might be used to offset some of the cuts.”

“We’re going to have to get back next year to entitlement reform,” added Speaker of the House Paul Ryan.

Everybody with common sense knows that Social Security and Medicare need to be modified and/or shored up. But in politics, timing and message are everything. Just hinting, if not outright saying they’re cutting Saying Social Security to pay for tax cuts fumbles the ball to Chuck and Nancy on the 10-yard line.

“Stupid, stupid, stupid,” as former Sen. Alan Simpson says.

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Graham’s “We Know What to Do” Is Not What They’re Doing

Once upon a time balancing the budget and lowering the national debt were top Republican priorities. Over two decades ago Newt Gingrich led a GOP revolution to do just that. Our own Sen. Roger Wicker, then in the House, signed on to Gingrich’s “contract for America.” Back then, in 1994, the debt totaled $4.7 trillion.

In July 2009, then Senate Republic Leader and now Senate Majority Leader Mitch McConnell said the national debt “threatens our way of life.” That year the debt was up to $10.6 trillion.

In 2012, the leaders of the bipartisan National Commission on Fiscal Responsibility and Reform called it a “national crisis.” That year the debt hit $16.1 trillion.

In 2015, Sen. Ted Cruz, a persistent debt hawk, said, “We need to stop bankrupting our country.” That year the debt hit $18.1 trillion.

In January of this year, Secretary of Defense Gen. Jim Mattis agreed the national debt is the greatest threat to our national security. “I consider it an abrogation of our generation’s responsibility to transfer a debt of this size to our children,” he added. This year the debt topped $20.2 trillion.

Dad gum annual deficits keep adding to the total. Last year the deficit added $666 billion. Without any consideration of the tax reform bill gripping minds and hearts in Washington, annual deficits are on track to top $1 trillion by 2021. Federal Reserve Chairwoman Janet Yellen last week said this debt trend “should keep people awake at night.”

But, this ever growing “threat” and “crisis” somehow aren’t so gosh awful important right now.

McConnell along with Cruz and Wicker is pushing the Senate to pass a tax reform bill non-partisan experts say will add substantially to the debt. McConnell and company argue tax cuts in the bill will “pay for themselves” through economic growth. Debate on the bill stalled last week when Congress’s own Joint Committee on Taxation said cuts would still add $1 trillion to the debt after accounting for economic growth.

So, Mitch, do skyrocketing deficits and debt not matter any more?

Back in 2012, former Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles, who headed the National Commission on Fiscal Responsibility and Reform, also wanted to cut corporate tax rates. But their plan would have reduced annual deficits by an average of $550 billion. Oh yeah, they wanted to balance the budget just like Newt.

Here’s one for you. In 2015 while running for President, Sen. Lindsey Graham said he would implement the Simpson-Bowles plan if elected. “We know what to do, but we’re afraid to do it,” Graham said.

The Simpson-Bowles plan called for tax reform to raise tax revenues to whittle down the debt, not pump it up.

Asked about the tax bill recently Graham said, “The Republican Party needs to deliver.”  Later he added, “Cutting taxes is not going to add to the deficit in any appreciable way.”

From balancing the budget to not adding “in any appreciable way!” That’s a pretty big swing Lindsey!

Oh, Graham said one other thing that may help you understand all this, “the financial contributions will stop” if tax reform fails.

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Christmas Gifts Coming for Corporations, Pranks for Taxpayers

Turkey time is not over, folks. Oh, you may be stuffed with Thanksgiving turkey, but you’ve still got a big Christmas turkey to swallow. That’s the wonderful turkey Congressional Republicans hope to cook up for you in time for Christmas called the “Tax Cut and Jobs Act.”

It’s an act alright.

Why do you suppose Republicans in the House will start taxing grad students who get tuition waivers? Put a new 1.4% excise tax on large private college endowments? Or eliminate the tax exempt status of private activity municipal bonds used to finance hospitals, airports, and museums?

Why would House Republicans eliminate the deduction for medical expenses altogether? And deductions for state taxes and personal property taxes? And all personal and dependent exemptions?

You get a hint as to why when you look at the turkey getting basted by Senate Republicans. It’s a slightly different bird from the House bill. It blatantly makes its individual tax cuts temporary while making corporate cuts permanent.

Even this turkey can see what’s happening. A gigantic, painstakingly wrapped, Christmas tax gift is coming for corporations and most businesses. Corporate tax rates will fall from 35% to 20% and the max rate on pass-through businesses (sole proprietorships, S corps, MLPs, LLPs, LLCs) will generally fall from 39.6% to a range between 25% and 35% depending on the type of income.

Prank tax cuts, offset with newly taxable income and reduced deductions, will stuff stockings for individual taxpayers.

The House bill even eliminates the $250 deduction for teachers to buy supplies for their students!

Such antics result from Republican leaders scrambling to lessen the wallop their gifts to businesses and corporations will have on the national debt. They gave themselves permission up the debt by $1.5 trillion. But that’s not enough. They’ve got to zap struggling teachers, grad students, and ordinary taxpayers to make the numbers work.

Oh yeah, the $1.5 trillion debt cap they’re working with is just for the first ten years. Projected additions to the national debt after that range from astronomical to stupendous, like in the $4 trillion range.

Guess what? If they cut the corporate tax rate to 25%, still internationally competitive, and put the top rate for pass-through businesses at 35%, the top proposed rate for most individuals, the hit to the national debt would go away, individual cuts could be permanent, and the zaps on teachers, grad students, and ordinary taxpayers could be eliminated.

Why are no Republicans fighting for this?

Well, there’s Trump’s insistence. But many are scared or committed to pay the piper.

You see, corporate titans like the Koch brothers have invested millions to develop grassroots organizations (Freedom Partners, Americans for Prosperity, Americans for Tax Reform, etc.) geared up to go after any Republican who doesn’t support their interests. Lots of Republicans are scared they will be primaried if they don’t toe the line. Others owe their political success either directly or indirectly to corporate titans.

This is real, hardball politics at work.

Ole Abe had it wrong. What shall not perish from the earth is debt-ridden government on the people, by the politicians, and for the corporations.

PS – They recommend swallowing this turkey whole, not chewing it up.

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