Will tax reform lead to budget stability?

Midyear state budget cuts have become routine, as actual revenue repeatedly has fallen short of projections. In the short term, major changes to state tax policy will make it even harder for officials to forecast state revenue. But over the long haul, the Jindal administration says, a flatter, simpler tax code, deriving revenue from sales taxes rather than income taxes, will provide a more predictable revenue stream. “It’s going to be stable, and it’s going to grow with the economy,” says Tim Barfield, head of the Louisiana Department of Revenue. It’s hard to predict how consumers will react to higher sales taxes. But the administration argues that, if done properly, comprehensive tax reform that kills or limits some of the state’s 468 tax credits, rebates or exemptions can’t help but make revenue forecasting easier. “I don’t know about stability,” says chief legislative economist Greg Albrecht. “Maybe. Depends on what else we’re going to be doing.” Corporate income tax is extremely volatile, he says, but personal income tax tends to grow with the economy. Sales tax receipts, however, tend to grow more slowly than the economy, Albrecht says. “Income and sales taxes—we’ve had a hard time predicting both of them,” says economist Jim Richardson, a member of the Revenue Estimating Conference. “I think the [personal] income tax is easy to forecast.” —David Jacobs