Even Gov. Bobby Jindal’s top aides have been highly critical of some of the tax credit programs they administer, such as the state’s heavy subsidy of the film industry and its so-called Enterprise Zone program, which has forced Louisianians to help cover the cost of putting retail stores and restaurants in wealthy neighborhoods.
But both of those programs, curiously, were left untouched by the scalpel Jindal took to state giveaway programs in the budget proposal his administration unveiled Friday.
Instead, the governor is suggesting what amounts to the restoration of a property tax on business that his administration has long criticized as anti-competitive and short-sighted — a proposal that is being panned by the business community that Jindal has zealously courted during his seven years in office.
So why is Jindal leaving untouched tax breaks that his administration finds ineffective while moving to reinstate a tax that his aides believe hurts Louisiana’s economy?
It’s difficult to say precisely, but at least some of the governor’s evolving philosophy appears to have been guided by talks with Americans for Tax Reform, a powerful, Washington-based anti-tax outfit that is influential in national Republican circles.
“The governor takes his pledge to not raise taxes seriously,” Jindal spokesman Mike Reed said Monday. “That is why the administration regularly discusses with ATR proposals that impact the tax code to make sure it does not violate the governor’s pledge to not raise taxes.”
The governor sought to underscore his commitment in a message included with his budget Friday, in which Jindal wrote: “Make no mistake — we will not increase the current tax obligation of any Louisiana taxpayer.”
But that claim is based on a very narrow parsing of the phrase “Louisiana taxpayer.”
No one in the Jindal administration would dispute that the governor’s budget plan, which contemplates curtailing a refund the state has long paid on a local property tax assessed on businesses, would mean that businesses would wind up — on a net basis — paying substantially more in taxes.
But here’s where the semantics come in: The inventory tax is assessed and paid by businesses at the local level; it is not a state tax. So when the state stops refunding those tax payments, nobody’s state taxes are going up. In fact, no one’s taxes are going up, period: Businesses just aren’t getting refund checks.
Stephen Waguespack, president of the Louisiana Association of Business and Industry, the state’s most powerful business lobby, calls that a tax increase, plain and simple.
Waguespack, a former Jindal aide, published a commentary Monday titled “Read My Lips” — a reference to candidate George H.W. Bush’s famous, later-broken promise in 1988 that he would not raise taxes.
“Repealing the inventory tax credit is bad policy and a tax increase we simply cannot afford,” Waguespack wrote. “The solution is easy to see if you just read my lips: We can’t afford this tax.”
Indeed, the roughly $380 million in inventory tax refunds that the state would stop paying to businesses under Jindal’s plan is nearly identical to the total amount of income and franchise taxes the state now collects from businesses.
The distinction the Jindal administration is drawing is one that separates “refundable” tax credits from various other state tax credits, many of which must be applied against a tax liability. But for those who aren’t tax accountants, the governor’s compartmentalizing may appear to be a distinction without a difference.
“For some convoluted reason (Americans for Tax Reform President) Grover Norquist has determined this is not a tax increase,” said blogger and former lobbyist C.B. Forgotston, a frequent Jindal critic. “Apparently he hasn’t given the same blessing to film tax credits and other things.
“It makes Norquist a hypocrite in my opinion because it is a tax increase. What we’re really talking about with taxes is an additional cost of doing business. By not having the refund, it’s an additional cost of doing business.”
Take the film program, for instance. The recipients of film tax credits — typically out-of-state producers — usually have no Louisiana tax liability. The state allows them to sell their credits to those who do have tax liabilities in order to realize the value of their credits.
Thus, film tax credits tend to reduce Louisiana’s overall tax receipts, which makes the program more palatable to conservatives who believe in shrinking the size of government.
But the film program also allows tax-credit recipients to sell their credits back to the state at a slight discount; they receive 85 cents for every $1 in tax credits. The makers of “Green Lantern,” which cost Louisiana taxpayers more than any other film to date, exercised this provision, and the state sent them a check for nearly $30 million. In recent years, according to a 2013 analysis, most filmmakers have opted for such a buyback.
Jindal’s evolved philosophy appears to be that tax credits become state spending when the state is writing checks, as opposed to simply reducing tax bills. But his administration doesn’t believe that applies to the film program.
Tim Barfield, secretary of the Department of Revenue and a Jindal appointee, concedes that “if you’re buying back, you do send cash out the door.”
But he draws a distinction between the checks the state cuts to filmmakers and those it cuts to businesses for the inventory tax.
“With the (film credit) buyback, you have to make a choice: Am I going to sell the credits back to the state or take the credit going forward?” he said. “On the inventory tax credit, they paid a tax, but it’s a local tax. We’re compensating them for another tax. The (film) buyback was an attempt to reduce the revenue loss. I don’t think it’s fair to say those credits are exactly the same.”
Other oft-criticized programs, like the Enterprise Zone program, are rebates rather than refunds, and thus curtailing them would constitute a tax increase, Barfield says. The same logic would presumably apply to the costly tax credit given to fracking wells, which is taken out of a severance tax that oil and gas producers pay to the state.
Barfield said the administration is open to discussions about the Enterprise Zone program and others but that, in keeping with Jindal’s ATR pledge, any cuts to those programs would have to be paired with a tax cut that made the change revenue-neutral.
In other words, if the Enterprise Zone program — which typically costs Louisiana taxpayers between $50 million and $100 million a year — were junked, the Legislature would have to offset that with a similarly sized tax cut elsewhere.
Louisiana’s business community doesn’t appear to agree with the governor’s logic. Rather, business owners view the curtailment of the refund program as a reinstatement of a tax they thought they had killed long ago. In other words: a tax increase.
Interestingly, Jindal and his top aides have consistently said they believe the inventory tax is a bad one. Such a tax exists in only about a dozen states, and they view it as anti-competitive. That was the rationale, more than two decades ago, for creating the workaround in place now, where businesses pay the tax at the local level and then get a refund from the state.
The Jindal administration has said it would support a repeal of the entire inventory tax, which would cure the problem for businesses but create a huge revenue shortfall for local governments. Meanwhile, that would require a constitutional amendment and a vote of the people.
Whether that plan will fly in a Legislature that is generally anti-tax is unclear. “I’m not sure we can just leave the locals with that kind of hole,” said state Rep. Tim Burns, R-Mandeville.
Burns, who ran on an “anti-tax, starve-the-beast platform,” but did not sign the ATR pledge, published a widely circulated commentary last week in which he said he believes it’s time for Republicans to take a hard look at the state’s giveaway programs.
Burns praised Americans for Tax Reform for putting a spotlight on tax increases, but added that “the group should recognize that there are also unwise and unfair corporate windfalls disguised as tax incentives and that reforming these is not necessarily raising taxes and deserving of the Scarlet T” — a letter of shame bestowed on legislators who violate the group’s pledge.
The Jindal administration says that just because the governor’s proposed budget doesn’t contemplate cuts to other tax credit programs doesn’t mean that the administration won’t entertain them.
“We are open to having conversations about options that were not included in our presentation,” said Meghan Parrish, a spokeswoman for Commissioner of Administration Kristy Nichols, the architect of the budget. “It would be wrong to conclude that the only things we support are the things in that presentation.”
Editor’s note: This story was changed on March 3 to reflect that state Rep. Tim Burns did not sign the Americans for Tax Reform pledge.
Follow Gordon Russell on Twitter, @gordonrussell1.