Better the tax you know and hate, than the one you might grow to hate more? That’s the kind of question that will haunt those under pressure from Gov. Bobby Jindal to rewrite Louisiana’s tax code.
Lawmakers and interest groups are abuzz over the issue, but it’s not clear what the large footnotes would be in an ambitious idea, levying a huge — or huger — sales tax burden on people in exchange for eliminating the state personal and corporate income taxes.
At around $2.9 billion in lost income taxes that would have to be made up somewhere, the fear is quite legitimate that a sales tax would slam the poor with tax increases at the cash register that they can ill afford. There is also the fear that the exemptions in today’s law, or in future handouts from future Legislatures, would be twisted in the process to shift the tax burden around among industry groups.
Jindal’s ideas are not, thus, a purely ideological decision about taxing the poor versus tax cuts for the rich.
As the Council for a Better Louisiana observed, for several years conservatives in the Legislature pushed for an end to income taxes.
Unfortunately, the lawmakers “seemed to suggest that somehow the state could forego a couple of billion dollars in revenues and everything would be just fine. The administration is developing a serious proposal that seeks to swap revenue sources,” CABL said. “While there may be considerable disagreement about various aspects of such a move, a debate on the merits of a realistic plan is healthy.”
Alas, how realistic? The details are too sketchy at this point, but we suggest that people look at this not simply as a debate over one tax or another.
First of all, would the new system be stable? We believe that the state must live within its means and must have the revenues to operate. Business, as well as state operations like universities, crave stability.
A state’s choices are different in terms of taxes than a nation’s, because the latter reflect ideological directions far less important at the state level. We must be pragmatists here.
Secondly, is it growth-oriented? One of the problems with government is that many of its most valuable services are not efficient — in the sense that it takes a teacher and X number of students to make up a classroom. Some things simply cannot be automated in the way that industry can be retooled to reduce operating costs.
That means costs will grow as the state’s economy and, hopefully, its population grow. The rap on sales taxes is that they can be unstable, most experts say, but another problem — CABL also pointed this out — is that sales taxes grow more slowly than income taxes. How far ahead will today’s debate look?
“This is a 30-year decision,” said LSU economist Jim Richardson, a member of the state panel that forecasts revenues. “This will not be changed in my lifetime,” if Jindal’s swap is adopted.
What should the 30-year goal be?
That time frame ought to put a premium on a state tax system that grows with what we hope will be a growing population.
Finally, how is this going to be accomplished? The governor’s point man on tax changes, Tim Barfield, told Advocate editors and reporters late last year that he had heard much criticism of the process by which Jindal pushed through education bills in the 2012 Legislature.
Barfield said the issues raised by tax changes are so broad that only a comprehensive plan that brings all groups to the table would be effective. Jindal has since pledged to meet with every member of the Legislature — the first time many will have seen him in a while — to talk about the plans.
That is important, and we welcome the promise of true consultation that Barfield and Jindal have advanced. The general public must know the choices in this debate.
The last thing that needs to happen is a chaotic legislative session in which the administration passes the candy — the income tax elimination — and then fails to make lawmakers and interest groups eat their spinach — produce two-thirds votes for all of the offsetting tax increases.
That way, 30-year decisions will be made in a sausage factory; the only lookout for the future will be in what’s-in-this-for-me dealmaking.
To get this right, we need to do this right.