The Tax Swap Plan Is Dying; Where Does Jindal Go From Here?

Before we get too far into this piece, a few things which ought to be understood…

1. I am, and have been for a very long time, a vociferous and passionate supporter of the idea of getting rid of Louisiana’s state income tax. Having an income tax when Texas is next door without one isn’t just dumb, it’s suicidal. And it’s the number one reason why Texas has seen skyrocketing economic growth, to a large degree at our expense. I’m willing to support almost any plan to get rid of the state income tax; if it means an increase in sales taxes to make up the revenues I can live with that and it might even be the best way to go.

2. I’m a fan, of sorts, of the idea of a consumption-based tax. An income tax is a tax on work, and it’s inherently redistributive. The idea of taxing productive economic activity which generates income or revenue has always been far inferior to taxing consumptive activity; we want people to save and invest, because that’s how jobs are created and wealth and capital can accumulate. Moving to something along the lines of a “Fair Tax” for Louisiana to replace the state income tax is, at a conceptual level, not unattractive. It might not be easy to implement, but it’s not unattractive.

3. Much of the opposition to the tax plan being pushed by Gov. Bobby Jindal at present is not only ideological but sinister. Anything you read or hear from the Louisiana Budget Project, for instance, or these suddenly-expert-on-tax-policy preachers around the state is nothing but left-wing Astroturf. It’s funded by the usual suspects – left-wing foundations like Tides or Open Society – and it’s affiliated with Alinsky groups like PICO or the Industrial Areas Foundation. You’ll never hear about that from the mainstream media in this state, because they’re overtaken with a criminal unwillingness to dig down and accurately depict who these people are.

All that said, the tax plan is getting killed in the legislature, and it’s perhaps not unjustifiable for it to have happened. The word is that Rep. Joel Robideaux, the sponsor of the bill containing the tax plan, is on the verge of pulling it.

The Baton Rouge Business Report has a piece this afternoon on the budding demise of the plan…

“It doesn’t seem there is much support for increasing the sales tax and without that it will be difficult to accomplish the other things that have been proposed,” Speaker Pro Temp Walt Leger, D-New Orleans tells Daily Report. “It will be very difficult to pass the proposal as written.”

Leger’s comments came on a day when the halls of the Capitol were abuzz with speculation about the demise of the tax package and what the Jindal administration might be doing behind the scenes to try to salvage it. The talk was fueled, at least in part, by the cancellation of this morning’s House Ways and Means committee meeting.

House Speaker Chuck Kleckley says the meeting was cancelled because lawmakers want to see a detailed financial analysis of the tax package from the Legislative Fiscal Office before voting on anything. Kleckley also says even though the session begins Monday, lawmakers will not take up Jindal’s tax bills until they get the so-called fiscal notes on the legislation from the Legislative Fiscal Office, which could take two weeks or more.

A little more, this time from the Times-Picayune

House Speaker Chuck Kleckley said lawmakers will rely on numbers provided by legislative staff, and not those put forward by the administration, when gauging the effects of Gov. Bobby Jindal’s tax swap proposal. But without “accurate” numbers about the proposal, lawmakers cannot begin debating the merits of the plan, Kleckley said.

“There’s so many confusing, so many conflicting stories on the numbers we think it’s very, very important to get those numbers correct,” Kleckley said.

The speaker’s comments, made during a traditional pre-session lunch with members of the media, came as various groups have challenged the figures administration officials have used when touting the plan, which would swap the state’s income tax for a higher, broader sales tax.

And in the meantime the Louisiana Democrat Party is gleefully repeating a wild rumor on Facebook

DEVELOPING: Jindal trying to remove Rep. Robideaux as Chair of Ways and Means for pulling the Jindal Tax Swap Bill. Jindal’s signature legislation for this session appears to be on Life Support

What sent this thing into a tailspin was a pair of events from last week.

First, LABI president Dan Juneau put out an epistle which flatly declared that his organization would support no plan which had the effect of raising taxes on business. Juneau’s bomb was dropped in retaliation to a quote by Revenue Secretary Tim Barfield at a hearing March 14 in front of the House Ways and Means Committee in which he said “It’s very clear that business will be taking more of this burden.” That was offered up as a money quote by the Times-Picayune’s Jeff Adelson, who splashed out a screamer of a headline: “Jindal tax plan would shift burden to businesses, administration aide says.”

But the context of Barfield’s testimony at the hearing was that business might be paying more in taxes in terms of a gross figure and business might actually be paying more in taxes in relation to poor people, but a simpler, easier tax code with no income taxes included will grow the economy and make for richer businesses, and over time that would mean businesses would pay more taxes as a result. Barfield was also trying to respond to the left-wing Astroturf move put on by a couple of out-of-state-funded Alinskyite organizations (PICO and IAF) by which a group of clergymen were trotted out to decry the loss of the state’s income tax as an attack on the poor, and he opened himself up to the wrath of the business community by trying to claim the poor aren’t going to get cooked by this plan and if anybody gets cooked it’s business.

I haven’t talked to Juneau specifically about this, so I can’t say for certain that his statement was an overreaction to a T-P quote. He’s a lot more sophisticated political observer than that. What might be a lot more to the point would be that he saw the air coming out of the tax plan and decided that a statement of principle – LABI will never agree to higher taxes on business – would be a good thing to do as a shot across Jindal’s bow. In other words, Juneau wanted to remind the governor that he has no shot at passing the tax swap plan without LABI’s help, and he needs to act accordingly.

Juneau’s missive was bad enough. But when Barfield came out Friday with an updated figure for what the sales tax rate would need to be for the plan to achieve revenue neutrality, and in a flash the state sales tax rate was going to move from 5.88 percent to 6.25 percent, all hell broke loose.

The most glaring example of the support for the plan taking a bath was a pair of Q&A interviews the T-P’s James Varney did with Sen. Conrad Appel on Thursday and Friday. At 5.88 percent, Appel was a strong supporter of the plan. But at 6.25 percent, Appel was, shall we say, irritated.

And now, it’s almost impossible to get this plan out of House Ways and Means. Robideaux knows this, and until something is done about it you can bet it won’t move. The Peanut Gallery is replete with rumor-mongering that Jindal is trying to sack Robideaux off the Ways and Means chairmanship, but we haven’t been able to get any confirmation of that being true. In fact, a member of that committee I talked to said not only hadn’t he heard anything of the sort from a credible source but that he would be shocked if it had any validity.

Even so, the plan can’t go anywhere as is. It’s going to need to be rethought.

Here are a few ideas on how to push this thing forward…

1. Scrape at the edges. Louisiana’s corporate franchise tax is a joke. It produced something on the order of $300,000 last year. That was it. A tax which produces $300,000 a year is not worth having. Kill it. And while you’re at it, kill the corporate income tax. That thing used to be a rainmaker; in 2007-08 it brought in more than $700 million. Now? More like $200 million. You could replace that revenue with a cigarette tax increase, and not even a cigarette tax increase that would be punitive in comparison with other states.

If that’s all you can do, it’s still a win. And it’s easy to pass.

2. Incentivize growth by buying some rich people. No, not economic growth per se. Population growth. Wanna bring in some net migration to the state? It’s not that hard. Pass a bill saying that anybody who moves their domicile to Louisiana and buys real property is exempt from state income tax. Period.

This idea costs you basically nothing. It gives income tax breaks to people who don’t pay income tax in Louisiana now, or at most pay a small amount (there might be people who do business here and thus make income here, but live out of state) – you might give up a little revenue in exchange for having them move into the state and pay property and sales taxes on a regular basis. And an influx of people who can buy property makes for an increase in the economy pretty much every time.

Who gets excited about this idea? Well, Steven Moret sure would like it – he’d have a nice convincer to sell to XYZ Corporation out of Pennsylvania who might move their headquarters to Alexandria; XYZ’s people would be paying the same income taxes as they would in Texas or Florida, and that ain’t bad. You can bet the realtors would like it fine, too, and the homebuilders certainly wouldn’t oppose it. Neither would the construction industry or the folks involved in dealing with retirees.

Who opposes it? The Louisiana Budget Project and the other class warriors cashing checks from George Soros. And they’re largely on their own, which is exactly where you want them to be.

3. A consumption tax. This one might be a little tougher sell, but philosophically it aligns with the model Barfield presented in his initial plan. Namely, institute a separate tax from the state sales tax which has no exemptions to it. Let’s say it’s two percent. And it’s on everything.

Functionally, the sales tax would jump from four to six percent. But for all these poor people Jan Moller and his happy band of class warriors at Together Louisiana and the Micah Project purport to protect, taxes go up only two percent. Do they go up two percent on food and drugs and utility bills? Yeah. But two percent is nothing. Two percent means your electricity bill goes from $100 a month to $102 a month. And if on consumer goods your tax costs go up two percent, then shop a sale once in a while, for crying out loud. That won’t break anybody.

The business community which sees the consumption tax on things which aren’t taxed now probably won’t be crazy about it, but can you really get bent out of shape when you’re trading in a six percent income tax for a two percent consumption tax and what has to be an improved economic climate in the state? And compared to the current plan this is a far easier pill to swallow – folks who are looking at a 6.25 percent jump in sales taxes would see a two percent consumption tax as a pretty significant win.

And you might be able to sell this on the basis that it sunsets at some point, because there’s another idea out there…

4. Phase in, phase out. Look, there is a two-thirds vote at the Capitol for killing the state income tax. You can find 70 votes in the House and 26 in the Senate for wasting that tax – and regardless of Bernie Pinsonat’s poll saying Jindal’s plan had widespread opposition, there are surveys going back years which show the concept of an income tax repeal is a popular one and has been for a very long time. Give Jindal some credit – if he didn’t see at least the possibility of a two-thirds vote for the concept of an income tax repeal before proposing it, we wouldn’t be having this debate, and a governor who’s been elected and re-elected isn’t a moron where reading the political tea leaves is concerned.

What this current debacle shows is that the implementation of an income tax repeal is where things get sticky. So let’s make it less painful. Phase the thing out over time, and adjust the state’s budget downward and/or make up the difference by killing exemptions and perhaps using that consumption tax outlined above while doing so, and you can find a soft landing at a much better tax code.

One way to do this is exceedingly simple – knock a percent off the state income tax every year until it’s totally gone. It’ll take you six years to completely kill it, but the revenue you lose is in far smaller chunks than if you went cold turkey without the income tax next year. And killing waste in state government is easier to do in smaller doses.

There is a downside to this if you’re Bobby Jindal, of course. First, he’s not in office when the income tax completely goes away, and he would want to be. And second, if somebody gets elected governor in 2015 who isn’t as committed to killing the income tax as he is the possibility exists that you ultimately lose what you’ve gained. And while it may seem petty to worry about the credit and to whom it goes, this is politics after all – and after what Jindal has gone through already on this plan it would be hard to blame him for wanting to carry the ball across the goal line.

But you take what you can get. And initiating a phase-out of income taxes this year is better than having to come back and start over next year.

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