I appreciate Gov. Jindal’s plan to end Louisiana’s personal and corporate income tax. Our state needs a tax code that looks like somebody designed it on purpose, and the Governor is correct, in my estimation, that the income tax, which taxes work, makes us less competitive.
Though well-intentioned, the Governor’s plan was not going to pass. Nor should it, if for no other reason than it would have raised taxes on businesses by $500 million.
Now that the Governor has withdrawn his plan we need a Plan B. Several plausible ones have been hinted at. Here’s another.
1. Draft the Legislative Fiscal Office, the Legislative Auditor, PAR and CABL to count the beans. They have credibility.
2. Forget about raising the state sales tax rate or taxing services.
3. Concentrate instead on reducing the state income tax by making it and the state sales and excise taxes flatter. Our goal for income, sales and excise taxes should be the lowest possible rate (everyone pays as little as possible) and the broadest possible base (everyone pays something), consistent with the promotion of shared social and economic policies (for example, no one should have to pay sales tax to eat at home).
4. Achieve our goal by objectively analyzing the efficacy of each statutory (not constitutional) exemption, exclusion, credit and rebate our current state tax code gives to people and companies that would be paying income, sales or excise taxes, like everyone else, but aren’t because a law exempts them. Why were they exempted in the first place? Job creation? Fairness? To promote a shared value? If the exemption is achieving its purpose, keep it. Perhaps even double down on it if it is working exceptionally well. But get rid of it if the preference falls short of its purpose. All it takes is a majority vote of the legislature.
5. The state has 19,000 consulting contracts, according to the Legislative Auditor. We don’t need all of them. Eliminate at least 10% by value, and demand a reasonable discount, perhaps 5%, on the rest when the state has superior bargaining strength, which is most of the time.
6. Implement a centralized collection process and automated collections management system to collect the state’s accounts receivable (debts owed the state, such as fines, medical bills and taxes) by passing HB 629 by Rep. Chris Broadwater (R) and Rep. Ted James (D). CGI Technologies and Solutions, Inc. estimates HB 629 will bring in an extra $158 million over 5 years, and likely more.
7. Eliminating exemptions, winnowing down and renegotiating consulting contracts and doing a better job of collecting state debt will save enough money to reduce the state income tax without raising the state sales tax rate or taxing services. The more money we choose to save this way, the more we can reduce the income tax. Enough could be saved to eliminate the income tax, if we want to. This sounds simple, and mathematically it is, but this exercise will require extraordinary political will. The buffet may be large-19,000 contracts; 468 exemptions worth $4.8 billion-but each has a constituency. We’ll find out quickly how serious we are about tax reform.
8. Finally, if Plan B passes, make it effective only if the voters agree. Gov. Roemer and Gov. Foster let people vote on their tax code revisions. So should the proponents of this plan.
Gov. Jindal has called for a fairer, flatter and simpler tax system that creates jobs and encourages growth. This Plan B achieves each one of his goals.