Jindal Hears The People On Tax Breaks, And Now The Fun Begins

Throughout the legislative session and the budget debate therein we’ve been treated to howls of indignation from those on the pro-spending side about Louisiana’s multiplicity of tax breaks and how those breaks are starving higher education and health care in the state.

Gov. Jindal agrees.

Yesterday, Jindal rescinded a rule by the Louisiana Department of Revenue that would have given freebies of up to $3,000 to buyers of new cars under the Alternative Fuel Tax Credit program. Some 112 models of new cars, most of which are Flex-Fuel vehicles, would have been covered for the tax credits but now won’t be.

The Monroe News-Star has the story

Jindal spokesman Kyle Plotkin said the future of the credit, as well as the fate of the credit for those who bought vehicles on the promise of the April 30 declaration, depends on the result of a proper following of the rules process.

When asked why Jindal waited 45 days to reject the rule, Plotkin said it was just brought to the governor’s attention Thursday.

However, Jindal’s Commissioner of Administration Paul Rainwater knew about the issue before Thursday, state Sen. Francis Thompson, D-Delhi said.

Rainwater didn’t return calls and emails from The News-Star requesting comment.

The state’s revenue department had issued its ruling that the tax break covered Flex-Fuel vehicles on April 30, and some car dealers had begun marketing those vehicles under the impression the tax break was available to their customers while the state’s CPA’s were springing into action telling their clients about the potential windfall if they’d bought a flex-fuel vehicle since Jan. 1, 2009. But the cost to the state of the credits is estimated at some $100 million a year.

Sen. Mike Walsworth, R-West Monroe, said he learned of the ruling through his CPA.

“I asked the legislative fiscal office (Thursday morning) to provide me with a fiscal note to determine the potential cost, but I suspect it could be more than $100 million,” Walsworth said. “It seems huge to me, and I can’t understand why we weren’t notified while we were in session so we might could have done something about it. I’m not sure we could have done something, but we should have had the chance.”

In this case, you can be a fiscal conservative and still congratulate Jindal for killing the new rule on tax breaks for flex-fuel vehicles. But he’s likely to catch a great deal of flak from his critics along two lines of attack.

The first line will be on this question of why it took six weeks from the time the ruling was issued to kill it, and the resulting confusion surrounding the bait-and-switch effect on flex-fuel vehicle buyers. From the News-Star piece, the car dealers were beginning to ramp up their efforts to let the public know about the potential credit…

Auto dealers had expected a boon from the credit.

“There’s no question I’ll use it as a marketing tool in my next ads,” said John Klagholz, who operates new car dealerships in Monroe and West Monroe, before he knew about Jindal’s late action. “It’s a home run for dealers and for consumers.”

Thad Ryan of Ryan Auto Group in Monroe had already started marketing the program.

Bob Israel, president of the Louisiana Automobile Dealers Association, said there had been confusion about the law until the April 30 ruling.

“It will certainly help sales,” Israel said before he knew about Jindal’s action. “As you can see by the inventory list, there are a tremendous amount of qualifying vehicles. It’s beyond what I expected.”

Israel said he had been cautious about touting the credit to LADA members until the April 30 clarification.

“We’re not in the business of providing CPA advice, and this isn’t a dealer or factory rebate, it’s a tax rebate over which we don’t control,” he said.

Plotkin’s statement that the governor just found out about the credit isn’t going to mollify those people. It’s more likely he just recognized the price tag that credit would carry with it and threw a fit, but even so when state legislators were finding out about the credit through their CPA’s it’s inevitable you’ll hear stuff like “Jindal was the last to know about this because he’s too busy campaigning for vice president” and so forth.

The second line of attack will be that Jindal is a tool of the oil companies for killing the tax break. There has been a whiff of that in the air of late¬†even among the more sober observers of the state’s political scene, and among the Hard Left the charge has been made far more forcefully. The environmental crowd have been big boosters of things like tax credits for alternative-fuel vehicles, so the loss of a pet policy like this won’t be an overly popular occurrence.

But it should be remembered that the state’s tax credit program for alternative fuel vehicles was put in place largely in an effort to boost the use of natural gas as a transportation fuel. It was passed in 2009, just as the Haynesville Shale play was coming on line. Additionally, the state was involved with several efforts at using sugar cane to make ethanol; the tax credit was seen as a way to help those efforts achieve profitability. And further, Louisiana is something of a testing ground for several attempts at making biodiesel production profitable. All are covered under the tax credit. But standard flex-fuel vehicles don’t particularly benefit any of those policy objectives in Louisiana; their presence mostly helps corn farmers in Iowa and Kansas, not sugar-cane growers in Terrebonne Parish or natural gas-rich landowners in DeSoto Parish.

So the tax credit’s expansion to Detroit’s flex-fuel vehicles was not a particularly smart one revenue-wise or economics-wise (unless you’re a car dealer), and Jindal’s decision to rescind it is the fiscally-intelligent one. The question is how the abortive giveaway escaped out of the bureaucracy in the first place.

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