Gov. Bobby Jindal’s proposal to eliminate the state’s individual and corporate income taxes has generated an explosion of reaction. The surprising thing is most of us have no firm idea of how the governor plans to achieve his goal. Some possibilities have been floated by his administration, like increasing sales taxes to make up the difference, but the real nuts and bolts are still missing.
Legislators hope Jindal doesn’t do like he did education reform when he waited until the last minute to divulge his plans. And even then the bills his administration proposed were rewritten with scores of amendments when they were first heard in committee. Marathon hearings lasted all day and deep into the night and ended with weary lawmakers voting for almost anything to end the torture.
Some of that has come back to haunt Jindal as he has seen parts of his reform package rejected in the courts. The governor is convinced higher courts will vindicate his efforts, but it hasn’t happened yet.
Meanwhile, Jindal has become a darling of the national media for his analysis of why Republicans lost the presidential election and for his decision to end income taxes in Louisiana. Out of the feedback that has erupted over Jindal’s relatively unknown plan come a number of factors that have to be considered before legislators make their final decision. Here are some of them that have been advanced from a wide range of analysts:
Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no income taxes, and most of them enjoy a robust economy. However, Florida and Texas also have high property and business taxes. Louisiana has neither.
Don Briggs, president of the Louisiana Oil and Gas Association, said the state is “experiencing economic prosperity at a time when many other states are still recovering from the deepest recession since the Great Depression.” He said a business friendly environment and determined workforce are major reasons for the state’s success. So the question is whether more incentives will increase what is already considered unprecedented economic development, particularly in this corner of the state.
An increase in the state’s 4 percent sales tax is being considered as one of the major ways to make up for the $3 billion that will be lost in income tax revenues. Speculation is the increase would range from 1.7 to 3 percent. The existing 8.84 percent average state and local sales tax burden is the third highest in the country, and even the slightest increase would probably push Louisiana to the No. 1 position.
Higher sales taxes could cause Louisiana residents near neighboring states to shop across the line, and force others to the Internet. State residents are supposed to pay sales taxes on online purchases, but the law is unenforceable. And until Congress forces the issue, that isn’t likely to change. A higher state sales tax could also make it more difficult for local governments to finance their operations with sales taxes.
The poor and low-income residents pay a heavier burden than most when sales taxes are high, but they get little sympathy from taxpayers who think doing away with the income tax is the only way to go. The assumption is that the poor are responsible for their own plight. As one critic put it, “It is not fair when some able-bodied citizens refuse to contribute to society and pay no taxes while governments take more than half of others’ earnings.”
Tim Barfield, the governor’s chief spokesman on the income tax issue, also talks about raising taxes on business activities that could raise an additional $800 million. The Council for a Better Louisiana, a non-profit research agency, said Texas has sales taxes on cable and satellite TV services, credit reporting businesses and custodial, security and information services. Everyone knows who ends up paying those service taxes — the citizens who use the services.
Another way to raise lost revenues would be to eliminate current sales tax exemptions. You can be sure those who benefit will lobby hard to keep them. Briggs, for example, said the 23 oil and gas exemptions are “vitally important to the health of the industry.”
Then there is the issue of local and state tax burdens. Tax Foundation, an organization that tracks tax rankings, has Louisiana in 47th place. Only Tennessee, South Dakota and Alaska have lower overall tax burdens.
The foundation said Louisiana’s per capita state income tax is $659 per person, which puts it in 34th place. New York is No. 1 at $2,311 per capita. Tennessee is lowest at $35 per capita and in 43rd place, 9 places below Louisiana. The other seven states have no state income taxes.
Doing away with state income taxes is certainly a desirable goal. Who wouldn’t like to do away with all taxation? However, government is designed to do for its citizens what they can’t do for themselves. The preamble to the state constitution says that includes protecting individual rights to life, liberty, and property; affording opportunity for the fullest development of the individual; assuring equality of rights and promoting the health, safety, education and welfare of the people.
Those are noble goals and that is why Gov. Jindal and the Legislature need to give the proposal to eliminate state income taxes the serious and lengthy deliberation it deserves. Many factors come into play, and each should be analyzed with extreme care. None should be ignored in a rush to do what may be popular, but perhaps not in the best interests of the people they serve.
Jim Beam, the retired editor of the Lake Charles American Press, has covered people and politics for more than five decades. Contact him at 337-494-4025 or [email protected].