U.S. Rep. Ralph Abraham and Baton Rouge businessman Eddie Rispone—the two Republican’s vying to become governor—are wrong: Taxes in Louisiana are not too high.
You read that right: these two smart, ultra-successful men are, at best, stretching the truth by dumbing down their campaign rhetoric on taxes. Why do they do it? Probably because most of you also believe—wrongly—that taxes are too high.
Here’s the truth: Whether you’re talking about people or corporations—which are people, too, thanks to the U.S. Supreme Court—Louisiana is home to one of the lowest effective tax burdens in America.
In fact, when it comes to the combined state and local tax burden, both per capita and as a percentage of income, Louisiana checks in at No. 45 on a Tax Foundation list where, if paying taxes is not your thing, it’s good to be darn near the bottom.
This state’s effective tax burden is 7.6%—which, coincidentally, is exactly the same as Texas—with only Tennessee (7.3%) as well as South Dakota and Wyoming (each 7.1%) coming in lower.
What we get in return for our tax dollars is a legitimate debate, but that has exactly zero to do with the question or whether taxes are too high. Honestly, that’s an argument over spending and the folks we elect to office.
But what about the nation’s near-highest sales tax rate? What’s the deal with all those LABI studies providing four-color graphic evidence of the tax beatings that business takes in this state? And the coup de grâce: Explain Louisiana’s routinely dismal business climate rankings?
Wonk alert: This is where life, the numbers and the truth get complicated.
It is accurate to say Louisiana has mighty high tax rates—and in many cases, like sales taxes and a handful of corporate taxes, among the highest in America. But—and this is a mighty big but—the state also has an inordinate number of exemptions and other workarounds which drastically reduce both the individual and corporate tax tab.
In plain-speak, Louisiana’s tax rates are high, but what we actually pay is not.
To get a sense of how many gimmicks have been concocted to right the wrong of high tax rates, consider this: Louisiana, according to a study from the Progressive Policy Institute, has between 450 and 500 of what it calls “tax expenditures”—a fancy way of saying “tax breaks.” Only the state of Washington has more.
For example, Louisiana’s way-high combined state and local sales tax rate—around 10%, depending on where one lives or shops—is essentially cut in half on many purchases thanks to at least 17 business and consumer exemptions of the state’s take.
On a far greater dollars-and-cents scale, Louisiana is one of a select few states—along with Texas—that secures many billions of dollars in capital-intensive manufacturing projects. Given that we’re largely talking about the petrochemical and the oil and gas industries, one can reasonably argue this sector is the most important when it comes to Louisiana’s economy. According to the most recent “Location Matters” study by the Tax Foundation, the state is 16th in the effective tax rate for these corporations, with an effective rate of 8.5% for mature firms and a nation’s-best 0.1% for new projects. Many of the states faring better on the list do minimal business in this sector so those rates are pretty much irrelevant.
In contrast, the much-compared Texas comes in at No. 23, with effective tax rates of 9.9% for mature firms and 19.8% for new ones.
Take a guess at what gives Louisiana a huge tax-rate edge in the capital-intensive game? Yep, the Industrial Tax Exemption Program … otherwise known as ITEP.
Think of it this way: residential property owners get the nation’s highest homestead exemption to offset high millage rates; big industry gets ITEP.
Simply put, ITEP is the reason why Louisiana has the country’s lowest effective tax rate for new projects. But—and it’s another big one—the Tax Foundation, when calculating these rates, only considers what it terms “by-right” exemptions, meaning the tax break is a lock. With Gov. John Bel Edwards changing the game in 2016 and Baton Rouge rejecting a pair of ExxonMobil requests earlier this year, ITEP is “by-right” no more.
Consequently, when you run the taxing numbers absent ITEP, look for the Tax Foundation to drop Louisiana from No. 1 for new capital-intensive manufacturing projects to roughly No. 44.
Which brings us to the state’s less than desirable business climate rankings. Without question the craziness of Louisiana’s corporate tax system—though not necessarily the actual amount of taxes paid—does have a significant impact. The tax code tends to knock Louisiana to the tail end of middle of the pack, but what drives us toward the bottom is insufficient funding for higher education and infrastructure—especially in the Tax Foundation rankings.
In short, what’s actually being paid in business taxes is a factor, but that’s not why our business climate is, to be kind, pitiful.
All of which is why it’s so important for people who know better—like Abraham and Rispone—to ditch the campaign garbage and start speaking hard truths to the electorate.
It’s nonsense like saying we pay too much in taxes—and voters believing it—that enables us to ignore this state’s many and very real problems. Until we acknowledge our problems, we’ll never begin the process of actually solving them.
Now, before Edwards and his supporters get too giddy, it’s equally disingenuous for the governor to be running around screaming that taxes have been cut on his watch when, in truth, the exact opposite has happened.
Shading the truth is how candidate Edwards can allay tax-and-spend fears by claiming an ability to solve the state’s looming budget crisis without having to raise taxes. Once elected, however, Gov. Edwards, despite serving in the House and voting for bills which led to the very fiscal mess in need of solving, moans the problems are far worse than anyone could have known, and higher taxes are the only answer.
Edwards might also want to give a shout-out to President Donald Trump and his overhaul of the federal tax code when the governor brags about pulling Louisiana from the fiscal cliff brink. Those tax law changes, intended or not, ginned up an additional $300-plus million in state revenue.
Louisiana will never be anything other than “better than Mississippi or West Virginia” until its leaders quit making false promises on the campaign trail and then kicking the scores of problematic cans down the road once in office.
The issue of this state’s ridiculously byzantine tax code is too vital to Louisiana’s future. It needs to be fixed—and simplified—like yesterday.
We, the people, deserve better. And, surely, the candidates can do better.