A Promise I’ll Make To The Fiscal Hawks

Very simply, this: I’ll reserve judgement on the “deficit reduction plan” we’re supposed to see the details on later today until I see it.

And if there are elements of that plan which have the effect of increasing state revenue, I won’t oppose them out of hand.

Because there are tax credits and exemptions in Louisiana’s tax code which don’t need to be there. There are tax credits and exemptions which have the effect of spending our tax dollars so that certain people will engage in economic activity in this state they wouldn’t be engaging in otherwise.

That’s a subsidy, and I would agree that subsidizing normally unproductive economic activity in a time of deficit is indefensible.

For example, there’s the film tax credit.

If Hollywood wouldn’t be making motion pictures here without Louisiana subsidizing production cost to the tune of a net $800 million over the past five years, then Hollywood needs to bleed somebody else dry. In 2010, a legislative fiscal audit indicates, Louisiana spent $197 million on film tax credits and got all of $27 million in tax revenue.

Now – Louisiana Economic Development says that for every dollar spent on the film tax credit there is $5.71 generated in economic activity. And that might be a true number. But that’s $5.71 in overall economic activity. Not $5.71 in tax revenue.

A businessman who gets asked to invest $197 million a year in an activity which will give him $27 million in revenue isn’t going to be all that excited about the possibility that his $197 million investment would mean $1.124 billion for the overall economy. He’s going to be more interested in the fact he just lost $170 million and somebody wants him to lose another $170 million next year.

That businessman is going to cut his losses.

For me, the film tax credit would make sense if Louisiana got a real payoff. Namely, production companies locating here and the development of an honest-to-God film industry in which movies are made in Louisiana from soup to nuts. That’s something altogether different from Hollywood showing up and making complete bombs like Drive Angry, projects which would never get off the ground but for the easy money offered by the state to make them. If a Louisiana production company goes out and makes a Drive Angry using Louisiana people in a Louisiana studio and it turns a big profit, that’s great and it might be worth the state’s having put forth a film tax credit for. But a Hollywood production company getting subsidized to do it, when if that movie manages a profit all the money goes back to Hollywood and the only benefit Louisiana gets is that the Hollywood production company might come back to make another movie with Louisiana subsidies, gets us very little.

Essentially, what that plan constitutes is the state paying people to employ Louisianans. It’s one step removed from the state hiring up a bunch of people in government jobs.

When you’re awash in money you can play in sandboxes like that. When you’re in a budget deficit it has to go.

And eliminating something like the film tax credit is NOT a tax increase. Nobody’s taxes go up if that thing goes away; they probably just take somebody else’s money to make Drive Angry and help cover Nick Cage’s IRS debt. Or if Louisiana has become such a fertile place for the film industry to do business that we’ll have movies made here with less of a tax credit or even none at all, then we’ll get a sustainable, and maybe even profitable, level of filmmaking being done here. And while that might inconvenience the Louisiana folks who’ve managed to find work as gaffers or extras on movie sets, on balance that is not more important than making sure LSU’s business school or the State Police get the funding they need.

So if there are things like the film tax credit which get a haircut in the fiscal hawks’ plan, I can live with them.

And if there are budget cuts in the fiscal hawks’ plan I think Gov. Bobby Jindal should immediately endorse them. Frankly, he ought to enthusiastically bank them without much regard to the details, out of a recognition that his war with the fiscal hawks has gone on long enough with too much damage already and it’s time he started burying the hatchet (and not in their skulls).

But where there are tax exemptions which are in place as a tacit recognition that Louisiana’s tax code in uncompetitive with, say, Texas, where there is no income tax, I can’t support the fiscal hawks. My guess is the rather unholy alliance they’re making with the Pat Smiths and Katrina Jacksons of the world is going to make for political suicide for a good many of them, and I hate to see it – but if you think it’s a good idea to raise taxes on productive business, you need to be made to defend that practice by having a conservative opponent in the next election cycle.

Having said that, the full-on attacks being leveled by the state GOP and various Tea Party groups make me uncomfortable. Those attacks are a function of the Jindal administration’s advocacy against the fiscal hawks’ budget dealing. Without knowing all the ins and outs of the negotiations between the parties behind the scenes – talking to the two camps yields a result reminiscent of what you get when you break up a fight between kids on a school playground – it is absolutely shameful for a Republican governor and Republican legislators to be so completely at odds. And that it’s come to this level of open warfare within the party is a disgrace.

I blame Jindal for this, because he has pretended to balance the state budget for years with fund sweeps and refinancing and so forth rather than work with the fiscal hawks to fix the problem. He could have acted years ago to bridge his differences with them and instead he has allowed the question of budget reform to fester and metastasize into the infection we saw this weekend.

And having the state GOP do his dirty work for him is really inappropriate, particularly before the fiscal hawks’ plan is made public. The state GOP should be staying out of internecine battles between a Republican governor and Republican legislators in general; if there is an egregious departure from conservative principles by one party or another, there might be a role for the state party to intervene. But we don’t have a plan yet and we probably shouldn’t have the party attacking a large number of its leges before one becomes public.

LABI’s Dan Juneau was, I thought, a lot more judicious and fair in his assessment of the fiscal hawks’ plan on Friday. After noting that his organization had come out against the governor’s proposal to swap out state income taxes for sales taxes with the effect being in large measure a tax increase on business, he said this…

This time the source is not the governor but the Legislature, in particular the House of Representatives. The current discussion centers around not a tax swap but a tax increase. Some members of the House are tip-toeing around that phrase, pretending that the reduction of tax exemptions, credits, or exclusions would be an “adjustment” and not a tax increase. That won’t wash. Any time an individual or a business has money taken away through any change in the tax code, that is a tax increase, not an “adjustment.” Words have meanings, particularly to those adversely affected by the language of legislative instruments.

The House will take up one or more tax increase measures next week. At the time of this writing, the proposals are conceptual only. A month has passed, but nothing has changed regarding the policy position that LABI has maintained not just for the past month but for the last several decades. LABI will apply that policy to the proposals put forth by the Legislature, just as we did with the governor’s proposal–and again, LABI will act accordingly.

One of the rumors floating about at this point is that the tax increases will focus on an across-the-board reduction in tax exemptions currently granted. The question is whether “everyone” will be subject to the across-the-board reductions of exemptions as some in the House are claiming.

Quite likely, most business will be included, but I have strong doubts that other entities will. For example, the exemption budget is rife with exemptions for farm supplies and equipment. Will those be included? Will exemptions for all non-profits be taxed? What about exemptions for local governments? LABI does not champion taxing farmers, non-profits or local governments, but we fully expect few if any changes in the tax code will be aimed at those entities, in spite of the “everyone will share the pain” rhetoric.

Additionally, there is some talk of suspending the targeted exemptions for one year, which would not be subject to a gubernatorial veto, but that would simply be replacing one source of one-time money with another source of  non-recurring revenue.

Governor Jindal discovered what a Herculean task it is to make significant changes in the tax code in a short amount of time. The House of Representatives will face the same problem. Developing accurate revenue estimates and dealing with potential unintended consequences isn’t an exercise to be undertaken in a short amount of time. Replacing $500 million in non-recurring revenue with a similar amount of tax increases will not go unnoticed politically or economically.

Businesses are already struggling to absorb recent and soon-to-be-implemented tax increases from the federal government. They will not look kindly on more coming from the state level.

That’s a statement of principle which has been unchanging for decades where LABI is concerned. And Juneau doesn’t have to provide any further explanation.

The state GOP is basically doing what it has to do. It depends on Jindal to its capacity to raise money, and as a result if Jindal wants it to be an outside messaging shop he controls, he gets to have it. That’s one of the perks of being a governor. But it doesn’t make it right, and he’s corrupting the party by doing it.

Jindal also found a friend in Erick Erickson at RedState, who has been reliable in his backing of the governor in legislative battles like this in the past and happily descends from the national scene to weigh in…

Being from Louisiana, I am never surprised by its oddball politics. Many of the people who now have an “R” next to their names for the longest time had a “D” next to their names. And many of them call themselves “fiscal hawks.”

These self-proclaimed fiscal hawks have decided to join the remaining liberals in the Louisiana House of Representatives and jack up taxes significantly.

The tax increase will be about $500 million and will be used to fund an expansion of government in Louisiana, putting Bobby Jindal in the unique position of both opposing big government and tax increases all on the same day. That day would be today. The Speaker of the Louisiana House, Chuck Kleckley, seems ready to go with this plan.

What’s so interesting here is that Speaker Kleckley, the Black Caucus in the State House, and these Republican fiscal chicken hawks will get rid of tax exemptions designed to help small businesses comply with state government bureaucracy. In other words, the Louisiana House Republicans intend to drive up the costs of small business to fuel the drive for even bigger government.

What really is aggravating is that these guys call themselves conservatives. If the word means anything, it means these “fiscal hawks” need to be beaten back. But kudos to Governor Jindal who, thanks to the fiscal chicken hawks, can be against tax increases, for the little guy, and against big government all with one swipe of the veto pen.

To call this simplistic and off-the-mark is perhaps too strong – if only because Erickson did link to this site. Given that I had a prominent member of the fiscal hawks tell me that there were in fact budget cuts as part of this plan, the idea that what they’re trying to do is raise taxes to fund an expansion of government simply doesn’t wash. I doubt Erickson made that up on his own; that’s a talking point he got indirectly from Jeff Sadow’s piece he linked to. And Sadow got it from here

By contrast, the Democrats want tax increases in order to redistribute wealth through bigger government. This serves not just their ideological agenda, but also their political agenda, in that if they can force any faction of Republicans to go onto the record supporting an overall tax increase, they can publicize that all Republicans do so, then claim they are the party better able to increase the size of government in ways that best redistribute wealth, as the GOP will have admitted it also wishes to do the same by that action. It shifts the electoral argument from one they lose, the appropriate size of government, to the one they win, who best maximizes big government redistribution. And they face no risk at all: without the cooperation of the “hawks,” they exert no influence in the budget process, so they have nothing to lose and everything to gain by having this fall into their laps.

As a philosophical point Sadow is correct; that’s what Democrats want. But as an evidentiary matter he’s not – it hasn’t been shown that the Fiscal Hawks are trying to grow government, and until the plan is released and there is such evidence nobody should be making that case.

But Jindal’s side of this argument seems to be doing exactly that. Maybe they’re correct and know more than I do about this plan; if that can be shown to me I’ll confess to it. Until that time, though, I’m going to be very suspicious about that charge; it smacks of “you’re a RINO because you don’t agree with me,” and Jindal’s people are pretty prolific with that. They tried to use it during the tax swap debate and it was wrong then as well, and they’ve played the RINO card with legislators who disagreed with them on the budget before.

Jindal’s argument is that killing tax exemptions to find operating revenue for state government is inherently less conservative than finding money in government bank accounts that can be used for that purpose. And that’s a bogus argument.

It might be good policy to raid government bank accounts to cover government expenses. But as we’ve shown, cutting losses on government subsidies can be just as conservative.

And fund sweeps aren’t conservative, per se.

Consider it this way – if you’re levying a tax for a dedicated government purpose, and that tax generates receipts larger than are necessary to fulfill that purpose, then the truly fiscal conservative position is not to sweep those funds into the general fund but to cut the tax that generates the surplus. Because a free-market economic perspective will treat all surplus government revenue – and in fact all revenue beyond what is necessary to fund core functions of government – as money wasted in the economy.

A truly fiscal conservative position would be to look at a state payroll which is still higher than the southern average and cut that until it’s more in line with the size of the economy and population it services. A truly fiscal conservative position would be to look at 14 public universities in a state with 4.5 million people and a six-year graduation rate of under 40 percent and to recognize that the resources and qualified student population really ought to support no more than eight.

And so on.

Jindal isn’t making those structural changes, though he has made others and deserves credit for them. And Jindal hasn’t jumped on the bandwagon some of the fiscal hawks have rolled in – namely, that these dedicated funds need to be loosened and done away with in large measure. He won’t ask the legislature to change the law on dedications; he’ll just sweep the funds, which angers the fiscal hawks and causes this problem.

It’s irritating to watch the governor and the fiscal hawks going to war with each other. It’s a disgrace to see politicians of the same party fail to resolve their differences over this long a time period and with this lack of decorum.

What it does is send a signal to the voters that the current crowd in charge at the capitol isn’t capable of effective governance. And that is the only thing which can bring the real incompetents – the Democrats – back to power in what is increasingly a Republican state.

So to the hawks, and the governor: quit beating each other up in the media, quit calling each other names, put your differences aside and come to some sort of agreement on how to close that $500 million budget hole. Maybe there are some exemptions which ought to go away, maybe there are more cuts to be made and maybe there are some funds which ought to be swept.

Just get it done and stop the bleeding before you kill your governing majority, for crying out loud.

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