Give Democratic Gov. John Bel Edwards credit; he tried to not waste Louisiana’s budget deficit crisis to advance his mission of growing Louisiana’s government. He attained only marginal success, thanks to an unusual occurrence: The Legislature showed some wisdom, mainly due to the fortitude of House Republicans.
Edwards and his Democratic legislative allies entered the session seeking to enlarge government over the long haul, wanting to pay for it by demanding more from the state’s most productive elements: businesses and higher-income families. This redistributionist mentality — with little emphasis on cutting spending — focused on raising income taxes disproportionately on higher individual earners and removing tax exemptions that benefited certain business activities.
The Republican-led Legislature — much more the House than the get-along-go-along Senate — looked to expand government only temporarily to buy time for future reform. Besides greater attention to spending cuts to reduce the current fiscal year deficit, these GOP majorities also argued for sales tax hikes of limited duration.
By contrast, Democrats argued for a long-term, 1 percent sales tax increase, yet refused to support any higher rate, even in the short term. They lamented that the 1 percent addition would make Louisiana average out (including local sales taxes) to have the highest sales tax among the states and claimed this would affect lower-income households more negatively.
But this view ignores that in per capita terms, Louisiana ranks 40th in the nation in sales tax paid. The extensive constitutional exemptions for purchase of unprepared food, residential utilities and prescription drugs wipes away a good portion of sales tax regressivity in the state. Federal census and labor data and private sector health expenditure figures in recent years reveal that the typical family with children that receives government benefits enjoys almost half of their expenses free of sales tax. Meanwhile, those families not receiving benefits only receive an exemption on just over a third of what they buy.
The rate flattens further when considering that lower-income households spend on average almost $3,800 more a year than they earn, reflecting the value of a portion of government benefits and tax rebates. That’s over twice the amount of sales tax they pay on average. In sum, a sales tax increase of 1 percent will hurt Louisiana’s poor only marginally, if at all.
Republicans appropriately held the line on individual income taxes in a state where less than a quarter of all filers — those making at least $60,000 annually — pay over three-quarters of all such levies. While lawmakers removed or reduced many exemptions on business taxes, the bulk of which will get passed along to consumers at all income levels, they did limit all sales tax increases to 27 months.
Best of all, even as it approved raising taxes considerably, GOP legislators forced spending cuts more than Edwards’ token amount. They left next fiscal year’s budget still an estimated $800 million short, making it ripe for more cutting. With more time to consider the budget and a longer period over which to spread these cuts, trimming state spending about 3 percent next year does not appear difficult during a regular session in which the state Constitution doesn’t allow them to raise taxes.
While little in the way of structural fiscal reform came from this special session, it set the stage for needed spending cuts in a state with per capita expenditures about 15 percent higher than the national average. Overall, that outcome scores the session positively.
Jeff Sadow is an associate professor of political science at Louisiana State University Shreveport, where he teaches Louisiana Government. He is author of a blog about Louisiana politics at http://www.between-lines.com, where links to information in this column may be found. When the Louisiana Legislature is in session, he writes about legislation in it at http://www.laleglog.com. Follow him on Twitter, @jsadowadvocate. Write to him at email@example.com. His views do not necessarily express those of his employer.