To tackle a looming state budget deficit, it helps to know how Louisiana got to this point.
The problem hasn’t developed because the state collects too few tax dollars. In reality, the shortfall represents decades of overspending — as measured by state dollars spent per capita, compared to the per capita income of residents.
A few months into former Gov. Kathleen Blanco’s term in 2004, and a year after substantial tax increases hit, Louisiana was clearly living beyond its means. It ranked 21st among the states in state dollars spent per capita, despite having only the 42nd-highest per capita income. That statistic would fall to 48th after the hurricane disasters of 2005.
Over the next five years, Bobby Jindal replaced Blanco, federal recovery money poured in, and the state’s economy received a boost from fracking becoming widespread. While the national economy struggled, the state cut taxes dramatically. As a result of letting people keep more of what they earned to spend and invest, along with windfalls from disaster aid and fracking bonuses, by 2010 per capita income shot up by 14 percent to rank 28th among the states.
Most significantly, officials put the brakes on spending to make government more affordable. As a response to the 2005 disasters, but also as a matter of Jindal’s governing philosophy, per capita state dollar spending plunged to 32nd among the states, declining 1.6 percent from 2005 to 2010.
As the bonuses faded, the benefits of tax cuts continued to pay dividends over the next five years while the state experienced an escalation, then cratering, of energy prices. Overall, though, per capita income grew 15.6 percent.
But it could have gone higher still, except Jindal and lawmakers lost their nerve on spending restraint. On the eve of implementing large tax increases to sustain the overindulgence, state spending per capita had ballooned 24.5 percent from 2010 to 2015, pushing Louisiana higher to rank 26th among the states. Then juiced spending levels put a lid on relative income growth, causing the state’s ranking to fall to 33rd.
Gov. John Bel Edwards entered office and duplicated in his few months the large tax increases of Jindal’s last year. Despite budgetary pressures, Edwards also oversaw continued higher expenditures of state dollars, rising 3.9 percent per capita by the end of FY 2017, although other states increased spending faster, so Louisiana fell to 29th among them in per capita terms.
Taking more money from the people and shoveling it through government left its mark. Through fiscal year 2017, Louisianians’ per capita income barely budged upward, 0.8 percent, even as during those 24 months the national economy took off and the energy sector continued recovering. That minuscule growth meant the state tumbled to 39th place in per capita income.
In summation, freely spending beyond inherent capacity to pay, a trend challenged only intermittently, is what created the budgetary hole. Poor spending policies have flourished, whether in the form of unproductive, targeted tax rebates, such as the Motion Picture Investor Tax Credit, or in wasteful spending to satisfy special interests, such as on nursing homes for the developmentally disabled when home- and community-based care does a better job less expensively, or on tuition for marginal college students.
Tax increases will only make matters worse.
Recent data paint a clear picture. Lower taxes and less government spending can help Louisianians prosper so that they can support appropriately sized government. Any budget solution that permanently raises taxes to sustain current spending levels and practices simply perpetuates the problem.