When a deal is too good to be true, it usually is.
It’s a hard lesson that usually comes too late.
Seven years after his vote for repeal of the Stelly tax reform plan, Gov.-elect John Bel Edwards surely has to reflect on his error, and those of his predecessor and many colleagues in the Legislature.
In a speech to the annual meeting of the New Orleans Chamber of Commerce, Edwards noted that the state faces significant budget challenges. While that’s not news, it is true that the budget picture is probably even bleaker than Edwards anticipated, even as he wrestled with budget issues as a two-term member of the state House.
The same would have been true if U.S. Sen. David Vitter would have won the November runoff for governor. Gov. Bobby Jindal’s successor faces the consequences of drastic cuts in the state income tax, caused by the 2008 repeal bill.
There are many factors in the state’s current financial problems, including a national recession and lavish giveaways of other tax breaks by Jindal and lawmakers. Edwards gained applause from his business audience when he said he would differ with Jindal in many ways. But as Edwards noted, the state’s biggest budget problems began with the partial repeal of the Stelly Plan.
That plan in 2003 raised taxes on higher-income earners while adding significant exemptions from the sales tax. The sales tax breaks to every resident on food and residential utilities are in the Louisiana Constitution and will not likely be changed.
But in a vote of breathtaking financial irresponsibility, the Legislature repealed the income tax provisions. Edwards was among those voting for repeal, blowing a hole in the state’s revenue structure from which it has not yet recovered. The state was then awash in hurricane recovery revenues, and lawmakers and Jindal should have known those would not last.
In a perfect world, once it became clear — as Edwards noted in his speech — that the state would be losing $700 million to $1 billion a year in needed revenue, the politicians would have come together around a restoration of the income tax provisions. That’s never happened, in part because of Jindal’s stubborn fealty to an anti-tax and anti-government ideology. Also, in part, because the Legislature has been too busy preening itself on cutting taxes for better-off constituents, even as it has raised tuition at universities and made serious cuts to state services.
The political realities are such now that Edwards is probably right in saying that reinstating the full Stelly income tax provisions is too difficult. After all, many of the lawmakers voting for repeal are still in office.
But major studies of the state’s tax code by university professors from LSU and Tulane and by outside experts from the nonpartisan Tax Foundation suggest some of the Stelly provisions could be brought back as part of a general restructuring of the tax system.
We argued against the Stelly repeal and we don’t enjoy saying told-you-so to Edwards, in 2008 a newly minted representative voting for a bill that was going to pass anyway. He now faces a grim financial prospect as governor.
“We’re going to have to put all options on the table,” Edwards told the New Orleans business group.
He is absolutely right, and we hope that lawmakers from the 2008 session also will recognize that the Stelly repeal was the mistake described by Edwards in his New Orleans talk.