I’ve talked about it before, but as more and more information comes out, I think it’s imperative to discuss it more and get other opinions on it. Governor Bobby Jindal has pitched his idea to eliminate the income tax in the state of Louisiana, which would make us the tenth state to do so. Interestingly enough, the conservative side of Louisiana political commentary is actually opposed to this. Now, this is going to come in two parts. The first part of this post is various sources offering their thoughts. The second part is purely me speculating and offering a point of view that most others don’t consider.
Based on a report from the Baton Rouge Advocate, here are some figures provided by one of Jindal’s biggest critics, C.B. Forgotston.
– Raising the cigarette tax by a dollar a pack will generate approximately $300 Million.
– Raising the state sales tax by 1.78 cents will generate approximately $1.3 Billion.
– That leaves roughly $1.4 Billion to be raised by other tax increases.
He adds flavor to the post on his website by saying “Hold on to your wallets!” because he does that. Ignore him.
First of all, the cons. Anti-cigarette groups are already telling us this will cut down on cigarette sales (which is good, they say), so we need to rethink that first figure (perhaps).
Now, the information is based on a rough draft, essentially, and we still don’t know the full plan. Let’s assume it goes up to four cents for every dollar. Suddenly, that’s nearly $2.7 billion. For approximately two more pennies per dollar spent. Makes you rethink getting that McDouble, doesn’t it? So, not counting the increase in the cigarette tax, we have nearly eliminated the $1.4 billion Forgotston says we still have to make up for. And in the grand scheme of things, that extra two cents doesn’t mean much.
Now, how does this all work? Reportedly, two bills. From The Advocate.
One measure would increase sales taxes and eliminate exemptions as a way to pay for revenues lost from repealing personal income taxes and corporate income and franchise taxes.
The second bill described would create a Louisiana State and Local Sales Tax Commission that would “act as a single collector, auditor and interpreter of the law…”
Bill 1, according to the handout, would retain state sales tax exemptions on groceries, utilities, prescription drugs and fuel. State and local governments still would be able to make tax-free purchases. The governor apparently also wants to keep several business exemptions, including those involving natural gas, vessels and telephone companies. It would allow for a “Modified Earn Income Tax Credit” to offset the impact of increased sales taxes on low-income families.
The changes would be paid for, according to the memo, by increasing state sales taxes from 4 cents per dollar to 5.78 cents per dollar.
Now, according to the Tax Foundation, “adopting the reforms would catapult the state’s ranking in our State Business Tax Climate Index from 32nd to 4th in the nation overall, the most dramatic one-year increase in the report’s history.” Critics, however, worry that this plan will cause a jump in taxes (led in voice by Forgotston) and will be placed on the backs of the lower class (Left-leaning critics). To see this claim, we turn to the Institute on Taxation and Economic Policy (ITEP):
In particular, ITEP found that the bottom 80 percent of Louisianans in the income distribution would see a tax increase. Specifically, the poorest 20 percent of taxpayers, those with an average income of $12,000, would see an average tax increase of $395, or 3.4 percent of their income. The middle 20 percent, those with an average income of $43,000, would see an average tax increase of $534, or 1.2 percent of their income. The largest beneficiaries of the tax proposal would be the top one percent, with an average income of well over $1 million, who’d see an average tax cut of $25,423.
Now, the other nine states that have adopted a no-income-tax plan (Texas, Florida, Tennessee, Washington, New Hampshire, Nevada, South Dakota, Wyoming and Alaska) have seen tremendous growth. Forbes estimates that these nine states grew 50% faster than the nine states with the highest income taxes.
Job growth rocketed ahead more than twice as fast in the 9 no income tax states as compared to the 9 top income tax rate states. Yet, because of this more rapid economic growth, total state tax receipts in the 9 no income tax states still grew 30% faster than in the top tax rate states.
Let’s get to the bottom line here: Jindal’s popularity is waning here in the state. It’s at the lowest it’s ever been, and his critics, who are largely more anti-Jindal than they are on his proposals, have entrenched themselves in skepticism and eagerly claim he is only attempting to boost his national rating ahead of 2016. His naked ambition turns them off. But, is it naked ambition or truly wanting to do good for the state? Or, and here’s a crazy thought, do those have to be mutually exclusive? Even if he is only acting for national status, this plan actually has benefits for the state. It is not as though we are being asked to sell our souls to the devil, here.
The plan is solid, and has seen results in other states. Texas is looking at a big surplus right now, the kind of surplus that Louisiana could use to balance its budget without having to use one-time money. The size of government in the state of Louisiana is large – too large – and does need shrinking. There is concern that there would be no shrinking if we just brought more money in, but that’s not the entire problem here. Louisiana’s constitution is so bloated with protected groups and funds that it is impossible to cut from anything but health care and education. If the government can fully fund those, then perhaps it could find the time to look into a proper constitutional convention and unprotect a lot of those that don’t need bloated bureaucracies and funds to function.
But it all starts with the tax reform, which we do need.