It should come as no surprise that Gov. Bobby Jindal wants to substitute significantly higher sales taxes for no income taxes. Eliminating the income tax is the ultimate conservative nectar. That explains why Jindal, who clearly has presidential ambitions, is enthralled with the idea.
But is it good policy for Louisiana, one of the poorest states in the country?
Hopefully, that's what lawmakers — and taxpayers — will debate in the coming months. History suggests the debate will be a partisan, ideological war; truth will be the first casualty.
Policywise, the governor proposes to eliminate personal and corporate income taxes while raising the state sales tax by 75 percent — from 4 cents to 7 cents.
The immediate reaction was predictable. Conservatives praised Jindal for proposing to eliminate the state income tax. Liberals (or, as they now seem to prefer, progressives) blasted it as regressive.
Jindal, meanwhile, still has a lot of details under wraps — or not yet fully developed. For example, when he unveiled the plan last week, he initially did not specify which sales tax exemptions would be preserved and which would be eliminated. Team Jindal later said the governor will keep taxes on food for home consumption, drugs and utilities. That sounded like a concession to the poor, but those exemptions are constitutionally protected. If Jindal wanted to eliminate them, his plan would be DOA.
The remaining exemptions, and there are lots of them, are on the table. No specific legislation has been offered, so right now we're talking about talking points, not specifics.
One general point that everyone should keep in mind is that consumers and businesses pay state and local sales taxes on most purchases. In New Orleans the combined sales tax rate is 9 percent; in Jefferson it's 8.75 percent. The state average is about 8.5 percent.
If Jindal's plan goes through as proposed, the area sales tax rate would be at or near 12 percent — higher for tourists who stay in local hotels. And that's not all.
Many state sales tax exemptions also apply locally. That is, a state sales tax exemption on, say, the purchase of raw materials for widgets often exempts the manufacturer from paying the local sales tax as well. If that exemption is eliminated, the manufacturer could have to pay up to 12 percent sales tax on raw materials. The owner of the company would no longer pay state income tax, but would he or she be better off? Maybe, maybe not. Twelve percent on raw materials is a steep hike from 0.
"While the name may sound simple, there is nothing simple about tax reform," says Dan Juneau, head of the Louisiana Association of Business and Industry. Juneau has followed tax reform in Louisiana for decades. He adds: "Even if it involves changes that are truly revenue neutral, it always consists of taking something from someone who has it and giving it in some form to someone else who wants it. There is always a monetary transfer at play."
That observation supports the argument of critics that Jindal's plan will simply be a boon to the rich. On the other hand, depending on which exemptions remain in place, many businesses — and business owners — also could wind up paying more under Jindal's plan. Those margins, those details, are where the war will be fought.
Unlike Jindal's drive-by education reform efforts, which he rammed through the Louisiana Legislature before most folks (including legislators) could examine them in detail, tax reform directly affects everyone — and everyone knows it.
This time, everyone should be paying close attention from the get-go.