Income taxes aren't the real problem
By his blockbuster proposal to wipe out personal and corporate income taxes, Gov. Bobby Jindal once again demonstrates his ability to change the subject.
Until his plan became public last week, no one was talking about how burdensome and repellent were the two taxes, especially the personal income tax, one of the lowest in the nation. Even his point men on his tax agenda, LED Secretary Stephen Moret and Revenue Secretary Tim Barfield, did not cite those taxes themselves as unfair and counter-productive. Instead, they insisted that the overall tax burden was low but that the tax code was flawed by high rates, multiple brackets, and way too many exemptions.
But now that those levies are targeted for extinction, the governor and his wingmen can talk about nothing else than how much better off the state would be with tax repeal. The governor's press office promptly produced studies and news accounts of how much likelier are companies and individuals to “vote with their feet” and move to states that do not tax incomes.
Jindal & Co. assert that in-migration of companies and well-heeled retirees would create more jobs and grow the tax base: Don't tax them and they will come. There is no disputing the notion that Louisiana without income taxes would be more attractive to outsiders who are seeking tax havens that also have good food. But as we wait for this stampede toward our borders to occur, what would the change—especially the higher sales tax—do for middle-class families who are already here and are struggling to pay their bills? The governor says nixing the personal income tax would put money in the pockets of families, but he is vague on how much he would take out of their other pockets through higher sales taxes.
For that matter, what is the governor doing right now for those least able to help themselves, which was a prime topic of conversation before he changed it? In the past month, cascading midyear budget cuts have reduced or eliminated programs to aid emotionally troubled youth, battered women and the dying. At least he did not add insult to injury by exhorting caregivers to do more with less.
For as much as his sweeping tax overhaul plan quickly dominated public discussion, the immediate challenge facing state government is dealing with possibly more deficits in the current fiscal year and then addressing the projected $1.2 billion shortfall in the year to come. Who wouldn't want to talk about something else, something cheery, like tax cuts?
This is not to say that the administration cannot both grapple with an immediate budget crisis and offer a bold vision for the future at the same time. Jindal deserves credit for putting a big idea on the table. But what he really needs to explain is how a new tax code would generate the stable and adequate revenue stream that the state has lacked ever since he and the Legislature gutted the Stelly tax swap plan in 2008, resulting in midyear deficits and hasty budget cuts ever since.
The next step, getting two-thirds approval of the Legislature to increase some taxes while cutting others, will be very difficult, if not impossible, if the only option is Jindal's way. Mainly, the governor insists on keeping overall changes revenue neutral. But doing so will be tricky, given the difficulty state economists have had in accurately projecting revenues under a tax code they know. It has been suggested that sales tax rates could be lowered automatically if they show to be bringing in too much money. But what if the tax swap formula doesn't bring in enough? That could necessitate a special legislative session in the middle of the budget year in order to hike taxes some more. Good luck.
A substantial increase in the sales tax, combined with the governor's demand of revenue neutrality, could be deal breakers for more than a third of legislators. Most Democrats and some Republicans, too, have had it with Jindal's annual crisis-response, cuts-only approach to balancing budgets midyear. Most likely, they will resist any grand plan that does not resolve the current structural budget problem in a balanced way. Until one side or the other, preferably both, gives some, eliminating income taxes will be an interesting topic of conversation, but not the law.
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