In many parts of Louisiana, we’ve seen years of relative prosperity since the stock market crash of 2008. Recovery is somewhat shadowed now by the low price of oil, which has hurt drilling and oilfield services in parts of the state.
No one blames that on Gov. Bobby Jindal, nor should they. But many folks in the State Capitol, particularly legislators facing re-election this fall, are unhappy about deep cuts to the state budget at a time of relative prosperity. And they’re looking around for the governor, or somebody, to blame.
Next year’s projected deficit of $1.6 billion is the largest one yet in an annual parade of such shortfalls, and there are fewer ways to plug the gap this time. That is because Jindal and lawmakers have used up trust funds and other one-time money for operating expenses.
It’s what an economist would call a “structural deficit.”
Louisiana simply isn’t collecting as much tax money as it was when Jindal took office, and the spending cuts he has made, though substantial, haven’t kept pace with the declining revenue.
In 2008, we warned about the poor decision to repeal the income taxes established in 2003 as part of the larger Stelly tax reform plan. That bad judgment, compounded by the recession later that year, has been further compounded by shoddy budget practices on Jindal’s part, abetted by many of the same unhappy legislators of today.
The income tax hurts, because much of the growth in incomes has come for higher earners, the same folks Jindal’s tax cuts favored. During the last fiscal year, the personal income tax brought 16 percent less money into the Treasury than it did six years earlier, when the Stelly plan was in place. Adjusted for inflation, the drop comes to 22 percent.
That wasn’t all. In Jindal’s first year in office, the Legislature also voted to scrap the sales tax that businesses used to pay on utility bills, which also caused a net revenue drop of several hundred million dollars. In large part because of that change, sales tax revenue last year was 7 percent less than five years earlier, before the exemption went into effect.
We supported the latter, because of assurances from Jindal’s administration that Louisiana’s competitor states did not charge the same tax. Was it worth it? Hard to say. A plummeting price of natural gas has probably had much more to do with the industrial construction boom than any single state decision.
While it is difficult sometimes to compare tax systems across states, Louisiana is manifestly not a high-tax state, according to just about anybody’s calculations. As documented in a recent Advocate series, the state also loses millions in tax revenues because of a plethora of tax credits that seem ill-considered and of limited value to economic development.
Louisiana’s state government simply doesn’t effectively capture the revenue an efficient tax system should collect. That is not a matter of conservative or liberal economics. It’s a basic fact.