A few loosely-related questions for this Sunday morning:
1) Whose idea was it to have Louisiana’s new, temporary, costlier, and really confusing sales tax regimen kick in on April Fools’ Day?
2) Is there something even worse than worst?
3) And where have you gone, Vic Stelly?
OK, the first two of those three questions are more than tangentially connected.
Friday, April 1, was the day that Louisiana’s emergency 1-cent sales tax increase kicked in, after it was adopted during the recent special legislative session mostly because there was no other way to raise the quick cash needed to avert catastrophic, immediate cuts to state programs.
And while some of the particulars read like a joke — items purchased during a hurricane preparedness tax holiday that was canceled this year will subsequently be only partially tax-free, and materials for commercial fishing will be taxed while those used for production of crawfish and catfish remain exempt — it’s no prank.
Instead, the end result of the frantic process to avert a nearly $1 billion shortfall for the last quarter of the current fiscal year alone reflects a mad dash by lobbyists and interest groups to hold on to what they have. This is often how government works, and it’s not pretty.
Which brings us to Question No. 2. The Tax Foundation, a national pro-business think tank based in Washington, D.C., rated Louisiana’s sales tax system the last in the nation even before Friday’s changes kicked in. Between state and local taxes, Louisiana now has the highest combined tax rate in the nation, up from third highest. It also offers a bewildering array of exemptions, partial exemptions and phase-out dates, including some that vary by parish, and allows 60 different sales tax collectors to carry out the law.
“Louisiana has a high tax rate plus a poor base structure plus administrative problems,” Scott Drenkard, director of state projects for the Tax Foundation, told The Advocate’s Tyler Bridges. “I’ve never seen anything like it,” he said of the Department of Revenue’s 25-page explainer.
Not that the locals would disagree.
“They would rank us 70th if they could, maybe 80th,” quipped state Rep. Julie Stokes, a Kenner Republican, member of the tax-writing Ways and Means committee, and a CPA.
As for my third query: Vic Stelly has long since retired from the Legislature, but those who hope to make the tax code more sustainable for government and predictable for businesses and individuals — and on paper, that’s everyone involved, at least until we get into the particulars — should channel his spirit.
The Lake Charles Republican-turned-Independent authored the Stelly Plan, Louisiana’s last big attempt at tax reform.
The 2002 constitutional amendment was one of the more progressive policies the state has adopted, in that it exempted basic necessities such as food, utilities and prescription drugs from the state portion of sales taxes. This benefited people at the lower end of the income scale, who generally spend a higher proportion of their income on consumer goods. And luckily, these exemptions remain in place and keep the new tax increases from imposing even more of a burden on those who can least afford it.
The plan made up the difference by raising income taxes, on the theory that the new revenue would be more predictable than sales taxes, and that it would grow over time as the economy grew. But a subsequent generation of legislators bowed to political pressure and rolled these income tax increases back, in effect helping to create the crisis environment that made this year’s sales tax hikes inevitable.
It’s always worth remembering former Gov. Bobby Jindal’s role in the Stelly income tax repeal. Jindal, who understood the implications of such a move, at first quietly opposed eliminating the increases. It was only after lawmakers set out to get rid of the income tax completely that he jumped on board and claimed the massive but unaffordable tax cut as his own.
It’s also worth remembering that the roll back happened in 2008, when Louisiana still enjoyed a surplus bolstered by post-hurricanes Katrina and Rita spending and high oil and gas prices. It wasn’t so hard to predict back then that the good times wouldn’t last, but the Legislature and the former governor opted to live in the short term and let the chips fall where they may.
Which means that, in hindsight, they paved the way for the new taxes that took effect on April Fools’ Day. The joke, it seems, was on all of us.