This mess should be a cautionary tale about the dangers and unintended consequences of tax credits. The alternative-fuel tax credit was estimated to cost $1 million for its first five years when lawmakers approved it in 2009. Instead, it has cost the state more than $24 million — and counting. This demonstrates the need for the ongoing legislative review of more than 400 credits and other tax exemptions in Louisiana law. Combined, those exemptions give up a minimum $4 billion a year in state revenue.
A lot to unpack here. A little of it’s correct; most isn’t.
The reason the T-P is pontificating about the Alternative Fuels Tax Credit fiasco is that new figures have surfaced for what then-Revenue Secretary Cynthia Bridges cost the state when she interpreted a law hoping to encourage folks to use natural gas as a transportation fuel as covering flex-fuel vehicles. That figure: $7.4 million. Which is a bit more than the $1 million the debacle was supposed to cost.
But nowhere in the piece is an excoriation of Bridges for going completely off the reservation and offering up a giveaway to people who were never supposed to be covered by the tax credit.
Naturally, you wouldn’t see that. Bridges is a Democrat, and an African-American Democrat at that. To state the obvious, which is that if you have an incompetent bureaucrat who decides to make policy on her own it’s bad for everybody, would make the nice lefties at the Picayune’s editorial staff a little uncomfortable. Their record in smoking out Democrat corruption in Louisiana over the years isn’t particularly stellar – so nobody should be surprised when Bridges, a holdover from Kathleen Blanco’s administration (and Mike Foster’s before that), would have just thrown money out of a helicopter when it was nobody’s intention to see that happen and the Picayune glosses over this fact – for fairly obvious reasons.
Instead, they say that the legislation establishing the tax credit was poorly-written and it’s a cautionary tale pointing out that the state should go in and whack as many of its tax credits in general as possible so as to give the government more money to spend on the South’s largest state workforce and an overbuilt health care and higher education system.
Which is not to say the editorial is all wrong.
It’s true that tax breaks are inherently problematic. We point this out here at the Hayride all the time, but offering a tax break is an admission that your tax system as is isn’t good enough to attract the kind of economic activity you’re looking for. And offering tax breaks for that activity is fraught with a lot more potential for corruption and unintended consequences than anyone thinks; rather than a tax code that stifles activity with holes shot through it to protect the actors who have the best lobbyists and politicians in their back pockets, you’re better off with low rates across the board.
And since businesses and business owners pay some 80 percent of the property taxes in Louisiana, if the Picayune really wants to see the state have an economy which generates enough revenue for all the government goodies it’s looking to protect – and enough population to make them justifiable – maybe it ought to look in an opposite direction and consider whether Louisiana should have a corporate tax at all. The state only brought in $198 million in corporate taxes in FY 2010-11; it “lost” $1.46 billion through exemptions, but in almost every case those exemptions were put in place out of a recognition that Texas and Florida, which have no income tax at all, were kicking our rear ends and the industries getting the tax breaks needed the exemptions as an incentive not to decamp for friendlier pastures.
But sure – if you’re going to do a tax break, you need to do a good job of tailoring it to precisely the activity you want it to include, or else you’re going to have the unintended consequences monster at your doorstep breaking the place up. In this case the monster’s name was Cynthia Bridges, but there are other iterations of it in the weeds just waiting to attack.
Moreover, the best way to promote natural gas as a transportation fuel isn’t through tax breaks. It’s through utilizing the state’s proper role in the marketplace. Louisiana has a vehicle fleet of some 12,000, and converting that fleet to natural gas would move the market. So would using Louisiana Economic Development dollars to incentivize infrastructure construction for natural gas fueling stations – which might help overcome the obstacle consumers have to buying or converting vehicles to natural gas.
On the former, the state just acted to do exactly that. We give you Act No. 833 of the 2012 Regular Legislative Session, signed by Gov. Jindal in June. That law requires the state to purchase only natural-gas vehicles from now on, unless they’re not available or there are no NG fueling stations within a 25-mile radius of the vehicles’ base location. The text of the bill originally was to include hybrid vehicles, but that was struck out of it to make for a very narrow, targeted action.
Over time, that will have a better effect in creating a market for NGV’s, and potentially for less cost, than the law Bridges blew up along with her job.
But the Picayune asked the wrong questions about the tax credit in its editorial by not recognizing that when you leave it up to bureaucrats with agendas you’re going to get bad results even from good laws. And then it came to the wrong conclusion from its good question about what the implications of this tax credit’s failure ought to be.
Other than that it was a terrific piece.