SADOW: Sifting Through The Ruins Of Tax Reform

Contrary to what cinema might tell you, if you build it, they won’t necessarily come. Yesterday I laid out an uncomplicated plan to bring about beneficial tax reform that was politically possible. Today, at least one key legislator developed feet of clay and proclaimed that without legislator insistence he would not move bills towards this end, illustrating political possibility, strategic miscalculation, and the limits enforced by political culture.

House Ways and Means Chairman state Rep. Joel Robideaux made this announcement at its committee meeting that was supposed to vet most of the bills related to this. It’s a loss of nerve shared by others, and a missed opportunity by the state to improve the lot of its people.

It also means Gov. Bobby Jindal expended much to gain potentially little. The Jindal Administration did much spadework but misfired on one crucial element identified yesterday – simplicity – because of its own failure of nerve. The Administration from the start appeared extremely concerned to structure reform that did not make any lower income groups seem to pay more in taxes, thereby creating a complex system that achieved that end but obscured that because they made its administration more complicated.

As part of that, it became apparent that, in the short term, business would be affected in a way that some of them would end up paying more, either because of higher taxes or lower sales or both. The business community of Louisiana, which historically has leaned more on government than in other places to provide tax breaks or subsidization of activities that is entirely consistent with the state’s populist history, instead of looking at the bigger picture of how all would benefit under a shift from taxes on investment more onto consumption, over the long term business included, instead took a parochial view uninterested in economic growth beyond what it could see in front of it. With this special interest against the idea, and many who would be net beneficiaries by it confused, the political support just wasn’t there for Jindal.

Then Jindal turned it over to the Legislature last week when he perceived this environment. But this set a two-month clock on the process and put it into the hands of those who think naturally parochially in terms of districts, not the state. It’s one thing to have legislators crusade for tax cuts, because many win and nobody loses, so none can perceive costs to their districts all other things equal (their ideological leanings, however, may see things quite differently, especially for those who desire to empower government with expropriated revenues). But it’s another for them to sign onto tax reform, which creates winners and losers differing by district. Leaving that in their hands was hoping they would act against type, where on this issue they typically treat any serious idea like dropping a foundling into a wastebasket. Never trust a legislature to take the lead in tax reform: executive leadership only can make for success on this issue.

Had Jindal the nerve, he could have pursued a different but politically possible strategy, that acknowledged that there would be losers, now and forever, in tax reform and structured it that way to diminish the break privileges some accrued that did not produce as many benefits for the state as a whole as they received. He also would have had to concede that the outright elimination of the income tax was at this point not politically possible and gone for a flat tax, funded by tax exception elimination and higher taxes on activities where the government has a strong interest in altering behavior in a way not punitive that raises revenue for its own sake – yet ensure the plan did not overall raise taxes.

That didn’t happen, and now it won’t happen for some time. With Jindal as a lame duck the next time these matters may come up in regular session, 2015, legislators running for reelection would be too averse to risking the political consequences of the inherent tradeoffs in real tax reform, even if they spent the next two years coming up with something. The best we can hope for is a visionary governor elected then who comes in four years from now with a beneficial tax reform agenda.

This leaves as the only payoff from three months of discussion clarity of the political parameters to what was possible and could be done now. They include a vetting of tax exceptions, such as suggested in HB 444 by state Rep. Roy Burrell or HB 587 by Robideaux, and terminating perhaps all of them, as well as raising tobacco taxes as a number of bills ask, but with Robideaux’s HB 574 being the best of the bunch as it could be amended to take the increase and dedicate it to paying down the state’s unfunded accrued liabilities in its pension programs, freeing recurring monies currently used to do that for use in other areas of the budget.

It’s not much and it may not even be attainable, but that’s all we and Jindal can hope to get. Even so, it represents a political miscalculation by Jindal because tax reform in Louisiana runs against the grain of the populist element in its political culture, requiring a lot more political capital than in other states with a much more muted, if any, history of populism nor a tax code based upon it. The return on investment of that capital will be low, and just the effort itself has taken a toll on Jindal’s popularity and therefore ability to project power.

Thus the final consideration is whether Jindal succeeded in further transformation of the state’s political culture by provoking the discussion. Given that the Legislature conducted its own unenthusiastic review of terminating tax breaks last year, if some of those that carry significant dollars can bite the dust, that continues to push the transformative agenda along. If not, we can lament the wasted political resources that could have been deployed to positive effect somewhere else.

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