The Hayride

How Big A Mess Is The Tax Reform Failure?

How Big A Mess Is The Tax Reform Failure?
April 17
10:04 2013

Pretty big, actually.

When you can get these two groups, who ought to agree on just about everything, at such contretemps, you’re not doing it right.

First, Americans for Tax Reform, who put this out yesterday…

Gov. Perry Moves to Make Texas More Tax Friendly

Meanwhile, legislators in Baton Rouge are thwarting Gov. Jindal’s attempts to do the same

Americans for Tax Reform sent a letter to Texas legislators today, urging them to support the $1.6 billion tax cut for Texas employers proposed by Gov. Rick Perry yesterday. The proposal outlined by Perry would provide relief to over 100,000 Lone Star State businesses.

Perry’s proposal, if adopted by the legislature, would ensure that Texas remains the economic envy of the nation. Gov. Perry’s plan calls for lowering the franchise tax rate by 5%, making moving expenses deductible for companies that relocate their business to Texas, and expanding the $1 million business tax deduction to companies with gross receipts up to $20 million. In his letter to Texas legislators, ATR president Grover Norquist stated the following:

“While Texas has outperformed other states economically due to its low-tax, pro-growth, free-enterprise approach to governance, other states are moving to catch up in Texas and more must be done this session to ensure that Texas remains the most conducive state for job creation and the most attractive location for companies seeking to escape high tax states. The tax reform proposed by Gov. Perry yesterday would ensure that Texas remains the economic envy of the nation for years to come. “

If Perry’s proposal or the margin tax elimination bills introduced by Sens. Paxton, Patrick, and Estes were to be passed into law before the legislature adjourns next month, Texas would significantly increase the comparative economic advantage it has over other states.

Meanwhile, in neighboring Louisiana, Gov. Bobby Jindal has put forth a pro-growth plan to eliminate the state’s income tax in order to make the state more economically competitive with other states and especially the neighboring state on its western border. There are currently ten bills pending in the Louisiana legislature that would repeal the personal or corporate income tax. Unfortunately, it looks as though the effort to repeal the Louisiana income tax has been sidelined by short-sighted legislators in the Louisiana House.

Louisiana legislators who want to table income tax relief are causing their state to be left behind. Texas already has a significant advantage over the Pelican State due to its lack of a personal and corporate income tax. If Texas legislators are successful in reducing the state’s franchise tax and lawmakers in Baton Rouge continue to twiddle their thumbs, the Lone Star State will only extend its advantage over Louisiana.

Gov. Perry is putting up billboards in Illinois to encourage companies there to consider moving to Texas. If Louisiana lawmakers continue to sit back while other states make their tax climates more hospitable, Perry might want to consider putting up some billboards along the stretch of I-10 running through Louisiana. ATR will continue to follow both issues closely, and will be education taxpayers in Texas and Louisiana as to how their representatives in Austin and Baton Rouge vote on the important tax relief plans put forth by Govs. Perry & Jindal.

But then the Louisiana Association of Business and Industry had this…

LABI Applauds the Ways and Means Committee’s Actions

After Governor Jindal “parked’ his tax reform plan, LABI expressed concern over the methods used to build consensus for tax reform bills still active in the legislature. On Monday, the House Ways and Means Committee acted responsibly and deferred all the bills on the legislative agenda, potentially killing the tax bills for the session. LABI fully supports the action taken by Chairman Robideaux and the Ways and Means Committee yesterday and Speaker Kleckley’s comments in support of the action taken by the committee. Some of the proposals had a potential impact of a net tax increase of as much as $1 billion on the business community. LABI will now keep a close eye on other legislation that could potentially increase taxes on businesses in Louisiana.

ATR and LABI at odds over whether to get rid of Louisiana’s income tax? Welcome to Bizarro World.

LABI’s position, of course, is that any changes to the state’s tax code which result in increased taxes on business – in other words, getting rid of income taxes but replacing that revenue with, say, sales taxes and making business pay taxes on things they don’t currently pay on – won’t work for them. And nobody should expect them to advocate otherwise.

ATR’s position is that if you get rid of the mechanisms by which the government can raise revenue, government must become smaller. It’s the old “starve the beast” strategy.

Both are conservative positions. ATR would certainly agree that tax increases on business would constitute an unintended consequence of tax reform, and a negative one. And LABI is by no means opposed to getting rid of the state income tax.

That they’re arguing is an indictment of how tax reform was done. This was a botched plan, and the Jindal administration is at fault – not the legislators.

Jindal should get credit for trying, though. Eliminating state income taxes is badly needed. As ATR notes, the tax reform going on in Texas will only make things worse for our competitiveness – and so in order to avoid losing more business to those people across the Sabine our tax code will need to become MORE complicated rather than less, because rather than eliminating loopholes and exemptions we’re going to have to put more of them into the code.

Texas is vacuuming jobs, capital and talent out of our state because their tax code and governmental system is better than ours. Jindal sees that and is trying to change it. But there are a lot of interests at stake and a lot of people who need to be brought on board.

Not having LABI involved from the very beginning of the tax reform effort – LABI was brought into “stakeholder” meetings after the plan was already designed – was a mistake.

And another major mistake was continuously moving the numbers on what the sales tax burden would be. That came about largely because Jindal – and particularly Revenue Secretary Tim Barfield – got caught between a rock and a hard place when the media started howling that at a 1.88 percent increase in state sales taxes the result wouldn’t be revenue neutral, and oh-by-the-way that increase would destroy the poor.

Barfield’s charge was to structure the reform so as to generate the same revenue the current tax code generates. And he changed the increase to 2.25 percent in his projections to fulfill that charge, which had the effect of collapsing what support the plan had.

What might have been a better idea is, instead of Barfield raising the rates, that Jindal called a press conference in answer to his critics and – in his best Edwin Edwards impersonation – to say “Are you people accusing me of a tax cut? Why, I’m guilty as charged!”

He didn’t do anything of the sort, and we’re paying the price in having conservatives at each other’s throats this week.

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