Gov. Bobby Jindal’s proposal to eliminate personal and corporate state income taxes got its first detailed exposure last week. However, there are still more questions than answers at this stage of the process. Once legislation is written and debated, we should have a clearer understanding of how his plan will impact individual and joint income taxpayers.
Meanwhile, some of his goals are clear-cut. As part of his effort to replace $3.6 billion in lost revenues, Jindal wants to raise the state sales tax from 4 percent to 5.88 percent. He could have made life much simpler for everyone affected if he had just gone to 6 percent for the sake of easier bookkeeping. Add local sales taxes to the mix, and the total sales tax approaches 11 percent, the highest in the country.
The additional 1.88 percent state sales tax on all taxable items is estimated to bring in $1.88 billion. Applying the existing 4 percent state sales tax to some services would total $961 million.
The Jindal public relations machinery went into overdrive following the governor’s explanation of his tax overhaul program. We were reminded, for example, that food, prescription drugs and residential utilities are constitutionally exempt from the state sales tax. The governor’s press secretary said that means the higher rate isn’t really 5.88 percent, but somewhere between 3.12 and 4.34 percent. The higher rate applies to higher-income earners.
Critics of Jindal’s plan are quick to point out that higher sales taxes hit low-income wage earners and retirees hard. Most don’t pay income taxes. The governor said those taxpayers will be protected with special rebate programs. One would be the Family Assistance Rebate Program, and the other the Retirees Benefit Program. How the rebates would work is still to be ironed out, but they would probably be paid four times a year.
Aside from higher sales taxes, the other major concern revolves around nearly 40 new services that would be subject to the 5.88 percent state sales taxes. News reports talk about the taxes being charged on movie tickets, haircuts, hairdressing, dog grooming services, tanning salons, landscaping services, investment counseling, travel, accounting and computer services, cable and other subscription services, performing arts and museum, zoo and recreational services.
Some examples: An individual getting a $13 haircut, would pay an additional 76 cents in state sales tax. A $7 theater ticket would cost an additional 41 cents. Homeowners paying $100 a month for cable TV and Internet service would have to add $5.88 to the bill. Local sales taxes wouldn’t apply to any of the new services being taxed.
Excluded from the higher sales tax are health care services, education, construction, real estate and financial services and attorneys.
Smokers won’t be happy, but others don’t seem to have much of a problem with increasing the cigarette tax from 36 cents to $1.41 per pack, which is the rate charged in Texas. The increase would raise $370 million. Reducing some tax exemptions and eliminating others would raise an additional $385 million.
Jindal and his spokesmen said the goal is to produce a revenue-neutral tax package. In other words, they want to replace dollars the state will lose with an equal amount of new tax dollars. The governor said he also wants to simplify what is considered an outdated, complex state tax system.
State Sen. Bob Kostelka, R-Monroe, spoke for many others when he addressed that issue.
“It doesn’t sound like we’re simplifying the tax code; it sounds like we’re making it more complicated,” Kostelka said.
Legislators last week wanted to know what would happen if projected revenues from higher sales taxes don’t materialize. Tim Barfield, executive counsel for the state Department of Revenue and point man on the tax reform package, said adjustments could be made along the way. Lawmakers said a change in tax rates is their responsibility, but there was no clear answer about how those adjustments would be made.
Rep. Eddie Lambert, R-Gonzales, asked how the state would ensure that the new taxes levied on some 40 services were collected. Jason DeCuir, assistant secretary in the Department of Revenue, said the department has access to citizens’ federal tax information that would assist collection efforts.
Some legislators said the state has a good record in attracting industry to the state, including over $40 billion in industrial expansion announced for Southwest Louisiana. They asked why any changes are necessary.
Barfield said, “Good is the enemy of great.” He added that the state has gone from bad to pretty good where economic growth is concerned, and is now moving to great.
The Jindal administration said the tax reform effort will result in tax decreases for every resident. It said the reductions range from $25 for joint income tax filers making less than $20,000 annually to $4,544 for couples making $100,000 or more.
The governor and his team said they are confident they have most of the right answers, but they also said that about last year’s education and reform efforts that ended up in court. Anyway you size it up, this tax reform plan comes across as an extremely complicated puzzle. We can only hope legislators won’t fall in line until they get all the answers the folks back home want and need.
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].