A trickle-down plan
One litmus test for being a bona fide Republican in recent years has been the willingness to bow down before Grover Norquist and swear allegiance to the Taxpayer Protection Pledge, which essentially says local, state and federal governments in this country have a spending problem and that there's exactly zero good reasons for increasing any existing tax and even fewer reasons for approving a new tax. It's a pledge that 95% of all Republicans in Congress were willing to take, as well as dozens of GOP governors, including our very own Bobby Jindal.
The pledge pretty much lost its cachet a few weeks ago during the fiscal cliff negotiations when Norquist, under mounting pressure from Republicans losing the public relations war at home, gave his blessing to approving a deal that hikes income taxes for those earning more than $450,000 a year. Norquist has done his best to spin the facts to suggest it really isn't a tax hike, yet the Republican cabal appears to have moved on to other battles, like immigration reform.
If you're a Republican governor, like our governor, who this year heads the National Republican Governors Association, the winds of tax ideology have shifted from the avoidance of taxes to the implementation of trickle-down “pro-growth” tax reform. That's fancy talk for eliminating income taxes in favor of a state government fueled by sales taxes.
At least three states with Republican governors—North Carolina, Nebraska and our very own Louisiana—are considering plans to dump income taxes in favor of higher sales taxes.
After reading a report touting the benefits of replacing “the North Carolina income tax with [a] consumption-based tax,” released last month by the John W. Pope Civitas Institute, which bills itself as North Carolina's conservative voice, it seems as if all three states are operating from the same playbook. (Much like “vouchers” are known as “scholarships” in Republican parlance, “sales taxes” are rebranded as “consumption-based taxes.”) Certainly this much is unmistakable: What little we know about Jindal's plan mirrors exactly the arguments and underlying assumptions found in the Civitas report, including the belief that any reform must ultimately be revenue neutral.
The premise behind this brand of tax reform is that sustained economic growth in a state is directly linked to, among other things, a pro-growth tax policy. What's not pro-growth, according to Civitas, are high personal income tax rates and uncompetitive corporate income taxes. The rationale is that companies, small-business owners and entrepreneurs want to invest and create jobs in places where their earnings are not taxed by government but, rather, can be reinvested into the business to increase wages and expand employment opportunities. Corporate and personal income taxes are viewed as punishments for success; the steeper the punishment, the less likely an entity is to do business in a state.
The solution, according to Jindal and his fellow governors in Nebraska and North Carolina, is to follow in the footsteps of seven other states and completely eliminate the state income tax. While other states collect needed revenue in a variety of ways, the plan in Louisiana, Nebraska and North Carolina is to rely heavily on sales, or consumption-based, taxes.
Sales taxes are the preferred method of revenue generation because 1] everyone pays the same rate, 2] those who make more tend to spend more (thus pay more), 3] a person or business can self-regulate its tax burden based on spending habits, and 4] money used to grow a business is free from state taxation.
Granted, sales taxes are incredibly regressive, meaning poor people pay more, by percentage of income, than wealthy people; but that argument is dismissed by Civitas, which declares that the increased job opportunities and higher wages that come with pro-growth tax policies will ultimately allow poor people to no longer be poor. “Simply put,” says the report, “increasing people's economic opportunity is the best way to help lower-income families.” Jindal and his staff have repeatedly made similar statements.
In essence, what Jindal is proposing in Louisiana is a state-level brand of trickle-down economics. This theory, most closely associated with Ronald Reagan, wasn't sustainable, for a variety of reasons, over the long haul at the national level. It will be interesting, assuming Jindal gets his package passed, to see if it works any better in Louisiana.
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