The Fiscal Hawks And The ‘Massive Tax Increase’ Coming On Monday

Last night there was a red-alert, ring-the-firebells e-mail emanating from the Tea Party of Louisiana…

Probable vote in House on Monday for MASSIVE TAX increases led by so called “Conservative Fiscal Hawk” Republicans and the Black Caucus!!! Prepare to descend upon the state capitol on Monday and to make sure we vote these Government Gone Wild RINO Repubics out of office in the next election!!! Hell , it’s time to throw everyone of them who are of this kind of thinking OUT right now!!! What about cutting spending and reducing the size of the government to balance the budget!

That, plus the Louisiana GOP also put out a missive on the massive tax hike…

Speaker of the House Chuck Kleckley has just announced that the legislature will be unveiling a budget “compromise” package early next week between some Republicans and the most liberal Democrat members of the state legislature. Details are scarce at the moment, but reports say some Republican members of the Louisiana House are going to cave to Democrat demands and agree to increase taxes by $500 million to fund a long-term increase in the size of government.

Raising taxes would hit working Louisiana families the hardest and would stunt economic growth. Our state has done well at recovering from the national recession and has outperformed the national unemployment average, but all of this progress could be lost if a tax increase is implemented.

Louisiana taxpayers should not have to pay higher taxes to fund a long-term expansion of government. Call your legislator and urge them to support a budget compromise which does not include tax increases and instead focus on legislation which will create jobs and keep taxes low.

This all comes from developments earlier this week in the House, in which Kleckley announced that the parameters of a deal on the state’s budget were forthcoming, and asked the members of the House, plus whoever else was within earshot, not to prejudge the plan before they heard all the details.

I happened to have a meeting yesterday with a prominent member of the fiscal hawks, and he talked about what they have coming on background.

For those of you for whom budget discussions are a cure for insomnia, or those who haven’t been paying attention, some context: Louisiana is constitutionally required to balance its budget, and ever since the Katrina boom in state revenues died out, which happened at the same time the national economy went down the tubes, we really haven’t done so.

The budget has been, for all practical purposes, in deficit since around 2009.

There are three ways to remedy this problem, at least in the short term. The first way, and the proper way, would be to cut back on expenditures. This has kinda-sorta happened. There has been a cutback in the number of state employees, and in the “unprotected” categories of state spending there have been some real cuts. For example, higher education has seen a dramatic drawdown in general fund dollars – most of which has been replaced by tuition increases, and that probably needed to happen for non-budgetary reasons.

The second way, and the way the current governor’s predecessor was a big fan of, would be tax increases. Tax increases don’t work, of course – they never produce the revenue they’re supposed to, and what revenue they do produce is almost always spent as soon as it comes in – because politicians have no fiscal discipline and never will.

But Gov. Bobby Jindal has come up with a third way to resolve the budget issue – namely, sell things off, sweep dedicated funds and refinance everything. That’s not really a solution for a budget deficit, of course – it’s a patch over the problem, and it’s caused lots of people to lose faith in Jindal. Particularly, a group of fiscal conservatives in the House, who have taken to calling themselves “fiscal hawks.” And for the last couple of years, the fiscal hawks have been gaining in support for having an honest budget which is honestly balanced.

But the fiscal hawks in the Senate are few and far between. The Senate is run by Democrats. You can call current Senate President John Alario a Republican if you want; that’s what he calls himself these days, but given that Alario was Edwin Edwards’ BFF in the legislature for three decades he isn’t exactly Barry Goldwater.

And what has happened for the last few years is that Jindal will submit a budget replete with fund sweeps, property sales and accounting tricks, the House will look at the budget and recognize that it’s not balanced, the House will then pull the “one-time” money out of the budget and pass something with lots of cuts in it. That budget will be criticized by the governor, and when it gets to the Senate the cuts will be reversed and the “one-time” money will go back in.

The Senate will then deliver their budget to the House with, say, an hour left in the legislative session. And the House gets to decide whether to knuckle under on the budget or reject it, which would then force a special session on the budget in which the House is outnumbered by the Senate and the governor.

And when the fund sweeps and selloffs and refinancing and so forth don’t pan out into actual revenue, Jindal is then forced to engage in mid-year budget cuts which are politically unpopular and cost him political capital. Some of those cuts are actually quite beneficial to the state over the long haul; leasing the Charity Hospitals to private providers was a great decision, for example. But since Jindal is making those cuts on his own, he has no political allies in making them. Since the legislators who wanted to make cuts were rebuked during the budget process, they’re happy to snipe at them when they happen courtesy of the governor’s mid-year hatchet. And when the leges catch hell from people in their districts who feel Jindal’s cuts, all they can say is “I have no power to fix it.”

Because of this dynamic, the dissatisfaction with the process within the Republican ranks in the House has grown and grown and so have the ranks of the fiscal hawks.

And because the Jindal administration hasn’t addressed this issue and made peace with the fiscal hawks, they’ve now cast about and found some friends in the Legislative Black Caucus.

So now there’s a coalition in the House which has some 70-75 members to it who are willing to put out a budget that has additional revenue in it. The fiscal hawks have made some common cause with the LBC and identified some tax exemptions they’re willing to get rid of and others they want to eat into. And that’s what Kleckley was announcing, and it’s what will make its public debut on Monday.

The “deficit reduction plan,” which is what they’re calling it, will contain some budget cuts. And it will eliminate some deductions that are most easily identifiable as subsidies – if there’s a tax exemption out there, for example, which gives people a break on something they’d do anyway regardless of how the tax code treats it, that’s a subsidy, where if the activity wouldn’t happen but for the favorable tax treatment the state gives it you’re not really looking at a subsidy because the state wouldn’t be getting tax revenue out of something that wouldn’t exist.

And the way it was explained to me is that the drawdown on exemptions in many cases isn’t set in stone but rather works as a function of the budget – in other words, when there’s a deficit and the state can’t afford the exemptions, that triggers reductions in them. So if next year the budget picture looks better, for example, the “tax increases” in this year’s plan would go away.

But there are reductions on exemptions that aren’t subsidies, too. And it’s a very valid point that historically speaking you’re an idiot if you trust politicians to stick to their word and give back money after they’ve taken it.

And that means what the fiscal hawks make public on Monday is likely to be – if not a complete lead balloon – politically unpalatable.

They’re claiming that they’ve got a wide swath of the House willing to “take a tough vote,” in the words of Rep. Brett Geymann (R-Lake Charles), but as one lobbyist for a business trade group told me yesterday, “these guys didn’t get sent up here to raise taxes, and the ones who forget that will get reminded of it big-time in two years.”

Remember, the majority of these guys are Republicans. Republicans who raise taxes are playing with fire. Some people who have very good records in the Legislature are going to get blown out of politics in 2015 if this plan has the kind of tax increase in it the GOP and the TPOL and screaming about.

These guys aren’t stupid, though. And they’re generally not RINO’s – there are a few of them in the mix, but most of the fiscal hawks tend more to the Tea Party than anything else.

In other words, there really oughtn’t be any ideological difference between Jindal and these people, and the governor should have made his peace with the fiscal hawks a long time before they cast about for friends in the LBC.

And now we’re about to see some political suicide on the part of some fairly good leges.

This would be a completely vain gesture on the part of the fiscal hawks but for the very real possibility the Senate will plug the Obamacare Medicaid expansion into the budget. If that’s done, Jindal will have a real problem – he’ll have tax increases on one side’s budget and Obamacare on the other.

As such, Jindal will likely have to compromise with the House. He’ll have to take the budget cuts in this plan, and maybe some exemptions going away. And he’ll have to get them to stomach some one-time money. Then he’ll have to force the Senate to live with what the House does rather than to have its own way.

When those exemptions go away, Jindal can forget about national politics. He’ll be finished, because he’ll have signed on to a tax increase. The business community will be in open warfare with him; the folks at LABI are already furious at him over the debacle of the attempted income tax repeal along with a number of other issues. And some of Jindal’s allies in national politics will begin to turn on him; they’re already backing away from him given his lousy poll numbers. Add a tax increase to it and instead of calling the fiscal hawks RINO’s it’s going to be Jindal who’s a RINO now.

Or Jindal can stonewall the House and side with the Senate again, which means he’s going to get Medicaid expansion for his trouble, PLUS he’ll get a special session on the budget which will be an ugly mess, PLUS another round of mid-year budget cuts the blame for which will fall solely on the governor.

Nobody wins here. Well, almost nobody. The Louisiana Democrat Party thinks it’s Christmas in May. They think they’ve actually got hope of winning an election or two in 2015 now.

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