Someone Should Ask JBE Why This Story Isn’t Being Written About Louisiana
Dow Chemical said Tuesday it completed the massive ethane cracker plant in Freeport that’s the “crown jewel” of its more than $6 billion expansion along the Gulf Coast, primarily just south of Houston.
The cracker facility will churn out 1.5 million metric tons a year of ethylene, which is derived from natural gas liquids and is used as the primary building block of most plastics. The plant, which is part of Dow’s sprawling complex in Freeport and Lake Jackson, won’t fully commence operations until midyear.
“The Freeport ethylene unit is the cornerstone of our $6 billion investment in the U.S. Gulf Coast,” said Andrew Liveris, Dow’s chairman and CEO. “Our growth investments leverage the advantaged shale gas supply available in the U.S.”
Indeed there are a bevy of new ethane crackers in Texas under construction that are all planning to take advantage of Texas’ ample and cheap natural gas supplies unlocked by the shale revolution.
Dow’s announcement comes just one day after Paris energy giant Total said it will build an ethane cracker with a 1 million ton per year capacity at its Port Arthur facility, as well as a new plastics plant just east of Houston near La Porte.
Occidental Petroleum, Exxon Mobil and Chevron Phillips Chemical all are completing major ethane cracker and plastics plant projects this year along the Texas Gulf Coast, including the Houston area, for the same purposes. They’re producing chemicals and plastics, much of which will be exported to the developing world with growing middle classes, especially Asia.
That’s an awful lot of capital investment going into the petrochemical industry in Texas, isn’t it? How much capital investment in Louisiana is Dow making? In 2013 that company made the decision to invest a billion dollars into its Plaquemine facility, and construction is ongoing there.
But in Texas they’re spending $5 billion.
Shell at one point was going to drop $12 billion into a gas-to-liquids facility in Geismar, and decided not to.
In all, three years ago it was said that Louisiana would have some $130 billion in industrial capital expansion on the way. How much of that has materialized? How much is still on the books? How much is going to Texas?
Phillips 66 is building a pipeline in Louisiana. They’re spending $20 billion on facilities expansions in Texas. $20 billion.
And what is Louisiana doing to compete with the roaring economic tiger just across the border?
Democrats and the Edwards administration are taking another swing at establishing a statewide minimum wage, this time at 75-cents more per hour, and another legislative efforts to ensure women are not paid less than men for the same work.
Both bills will be filed later this week for consideration in the legislative session that begins April 10, said Erin Monroe Wesley, special counsel to Gov. John Bel Edwards.
This year’s version would establish a statewide minimum wage and set that level at $8 per hour, beginning Jan. 1, Wesley said. In the absence of a statewide standard, Louisiana employers must pay their employers at least $7.25, the federal minimum, though some cities have enacted higher pay for their jurisdictions.
On Jan. 1, 2019, the minimum wage would increase to $8.50 an hour, as the measure is being drafted now, she said.
Nobody in Texas is interested in raising the minimum wage. Why? Because Texas’ economy is booming, and if you want to make more than the minimum wage you simply need a skill that’s in demand and you’ll be in demand. And in Texas they’re not interested in “equal pay,” because that amounts to squabbling over crumbs of the pie. In Texas they’re interested in baking more pies so everybody gets all they want.
And Edwards is also seeking to gouge job creators even more in the upcoming session, touting a plan to switch out Louisiana’s corporate income tax in favor of a gross receipts tax which is essentially a European-style VAT tax, in which every company in the state would have to pay a levy on all its revenues above $150,000 per year. Here’s what the Louisiana Association of Business and Industry had to say on that plan…
LABI 2017 Chairman of the Board Art Favre noted: “Louisiana has lost 25,000 jobs since the recent peak of the economy in 2014. Employers and families are struggling to stay afloat, but have already paid $1.3 billion more in taxes this year than last year. We urge the Legislature and the Governor to keep the people of this state at the forefront of any plan for fiscal reform and to take a comprehensive approach that includes changes to spending and the budget structure as well as more accountability across state government.”
LABI pointed to its recent publication that documented the tax increases of 2015 and 2016, showing a combined impact of $4 billion in new taxes on individuals and employers coming into the state over the next five years.
“The Governor’s latest tax proposal seems tone deaf to economic reality. After substantial revenue increases last year, state government should work harder to efficiently deliver services in a way our economy can afford,” stated LABI President and CEO Stephen Waguespack. “Before asking for even more revenue under the guise of reform, taxpayers deserve an explanation for how the additional $1.3 billion in state revenue is being spent this year when priorities like TOPS remain unfunded.”
The new Louisiana Department of Revenue Tax Exemption Budget released just days ago shows that the often-cited corporate exemptions are not the culprit for the current deficit. The inventory tax credit is down 60% from 2015 to 2016, now totaling just $226 million from a peak of $570 million. The Net Operating Loss deduction is down 65%, and the exemption for business utilities has dropped by 59%.
LABI’s Tax Council Director and Vice President for Government Relations Jim Patterson reminds the Legislature and the administration that: “Business is paying more than its fair share of taxes today. To allege otherwise is absolutely false. Employers in Louisiana pay the majority of property taxes in this state. Employers pay both individual and corporate income tax. Employers pay half of all sales taxes in the state – at the highest rate in the nation. Employers pay a franchise tax and an inventory tax in Louisiana, which most states don’t have. Employers pay excise taxes like severance tax and gas tax. It’s time to put political rhetoric aside and look at the facts.”
With regard to the Gross Receipts Tax concept in particular, LABI is wary. National experts and economists widely pan this tax, which is generally accepted as bad tax policy by groups as varied as the Council on State Taxation (COST), the Institute on Taxation and Economic Policy (ITEP), and the Tax Foundation. These national organizations raise significant concerns with the Gross Receipts Tax because it violates a number of tax policy principles such as transparency, fairness and competitiveness.
Patterson details a few concerns: “The Gross Receipts Tax leads to increased costs of production and an effective tax rate that is hidden from the consumer due to a ‘pyramiding’ effect. It taxes the first dollar of receipts or revenue without regard to profitability or ability to pay. Few or no deductions are allowed in general, and there is the potential for double taxation by those companies that pay individual income taxes as business pass-throughs. Corporations would now be required to calculate both income tax and the gross receipts tax, further complicating an inefficient system. Furthermore, the Gross Receipts Tax encourages vertical integration, which drives companies to find vendors outside the state. Is this what we want for Louisiana employers?”
State economists have repeatedly cited Louisiana’s poor economic performance as the driving factor behind the state’s deficit. LABI urges state leaders to look outside the Capitol to see what is really going on across this state and react accordingly.
“We need a plan to create jobs,” remarks Waguespack. “We need a plan to change the structure of the budget itself. We need a plan that tackles expensive state programs. What we do not need is a knee-jerk massive tax change where the primary goal is to generate revenue with little regard to the impact on the working families and employers of this state that will lead us right back to where we started: a down economy and a prolonged deficit.”
Waguespack concludes: “This latest tax plan seems more focused on playing politics against the Legislature than with developing sound fiscal policy for Louisiana.”
It doesn’t seem to resonate at the Capitol that taxing the hell out of the business sector while pursuing foolish lawsuits against the critical oil and gas industry (which has responded to those suits by abandoning the state in favor of investments in Texas) is a sure-fire reputation for getting annihilated in an already one-sided economic competition with our neighbor to the west.
We’re not messing with Texas. We’re letting Texas mess with us, because the people we’ve put in office are stupid and don’t understand economics. Don’t be surprised when you have to fly Southwest to see your friends and relatives in Houston or Dallas.