With just two weeks to go before lawmakers convene, Gov. Bobby Jindal's tax overhaul package remains — and this is a charitable assessment — a work in progress. The governor proposes eliminating individual and corporate income taxes as well as the corporate franchise fee. He would replace them with a higher tobacco tax and a higher (and much broader) state sales tax — 5.88 percent rather than the current 4 percent. That 1.88 percent bump may sound negligible, but it's actually a 47 percent hike in the state sales tax rate. Even those who are most sympathetic to Jindal's plan admit it would give Louisiana the nation's highest combined local and state sales taxes.
The downside of higher sales taxes would be offset, Jindal says, by an influx of wealthy folks seeking a tax haven — and a spike in economic activity. Not everyone agrees with that rosy projection. As the Louisiana Budget Project noted last week, "The plan just shifts who pays taxes, and a tax shift is not tax reform." Last week, the governor presented more details to legislators. If adopted in its latest incarnation, the governor's tax overhaul would have a huge effect on Louisiana citizens and businesses. Last year, the state collected some $3.1 billion in personal and corporate taxes. If the governor's tax plan is truly "revenue neutral," as he claims, and if he plans to "rebate" hundreds of millions to the poor and to senior citizens, lawmakers will have to find a way to make up roughly $3.4 billion via sales taxes. That's a lot of sales taxes.
The governor suggests eliminating scores of sales tax exemptions, including many relied upon by existing Louisiana businesses. Many household and charitable exemptions also would disappear. For example, the governor wants to tax cable TV installation and tickets to museums and local theater productions. He also proposes brand-new sales taxes — $1.4 billion of them — on everything from haircuts to veterinary visits to monthly cable TV bills.
Remember, these tax hikes would not increase state revenues; nor would they replace hundreds of millions of dollars that Jindal has cut from higher education and health care since 2008. No, the increased sales taxes would simply, allegedly, make Jindal's plan "revenue neutral." Unfortunately, the governor's plan would not be "impact neutral." Many individuals and businesses would pay more. Who would pay less? That's easy: tax-averse millionaires — and those who have the clout to keep their existing sales tax exemptions.
The Tax Foundation, a conservative Washington think tank, likes the governor's plan, as does Americans for Tax Reform's Grover Norquist, who famously said he would like to shrink government "down to the size where we can drown it in the bathtub." (How that statement squares with backing the highest sales tax in the nation is a mystery.) Meanwhile, 250 Louisiana clergy members from a variety of faiths last week blasted the plan as unduly harsh on the poor. The Institute of Taxation and Economic Policy says the plan would hike taxes on the bottom 80 percent of taxpayers while offering a break to the top 1 percent.
Not sure whom to believe? Consider that Jindal's point man on tax reform, Tim Barfield of the Louisiana Department of Revenue, pointedly told lawmakers last week, "It's very clear that business will be taking more of this burden."
In announcing the broad outlines of his plan, Jindal said, "Switching to a more stable tax base can smooth out many of the rough edges and stabilize state budgeting, and stability in government attracts businesses and creates good jobs." In other words, tax reform should make Louisiana more attractive to businesses. In fairness, parts of the governor's plan would do exactly that. Specifically, we like his idea of eliminating corporate income taxes and the corporate franchise fee, as well as his proposal to streamline sales tax reporting and collections. Those are things that businesses often cite as problems in Louisiana.
So why, then, make businesses shoulder "more of this burden" (not to mention burdening citizens more as well) with the highest sales taxes in the country? How would that attract businesses to our state?
Time is running out. The legislative session begins April 8 — just two weeks from now. Rather than hastily passing a flawed (and poorly vetted) plan, why not just pass those parts of Jindal's plan that everyone agrees make sense? Eliminate the corporate taxes, streamline sales tax reporting and collections, raise the tobacco tax to make up the difference — and spend the next year thoroughly vetting other ideas.