SADOW: We Need A Better Effort At Tax Reform Next Year

It’s correct to say both that taxpayer expenses paid to research and publicize Gov. Bobby Jindal’s unsuccessful tax reform plan of earlier this year were a victim of the state’s populist streak in its political culture and provided value as long as lessons learned do get applied.

The idea was, in general, to flatten and broaden the tax code by getting rid of many exemptions and eliminating the income tax by a swap for higher sales tax rates. Intellectually, the idea absolutely was correct if the goal was to create a more robust economy by encouraging better, more efficient use of inputs by the nongovernment sector. Unfortunately, that was not a goal shared with a significant number of policy-makers and special interests.

Populism prevented that, and stood in direct contrast with the basic theory behind the swap based on the idea that economic gains measured in an absolute sense were the most desired. That is, the best economic system was the one that produced the most overall wealth, because that meant most would be better off. However, century-old populism infused into Louisiana’s political culture derives from a relativist view: one group gains at the expense of others, where the political process determines the winners and losers (such as by having a progressive tax code or in carving out exemptions and subsidies for favored constituencies). Whoever flexes the most political muscle shapes economic outcomes, causing conflict and division, instead of embracing a unifying paradigm that gives all an equal chance to succeed economically in proportion to the contribution they make to that effort (although skewed somewhat by government to ensure that those willing but least able to contribute enjoy charity from others that supplies them with basic necessities, although in practice usually much more than just that).

In trying to convince policy-makers to embark upon this paradigm shift, the Jindal Administration spent around $800,000. While the effort failed precisely because too many policy-makers were enthralled with the old paradigm, if not as their political careers were built and maintained upon that, officials have argued they learned lessons for future implementation. One hopes these to be particularly lasting because it is unlikely that the special session required to accomplish this will be called next year, or that anything substantial and far-reaching like this will be dealt with in the election year 2015, so it will have to be under a new gubernatorial administration that these may be employed. And the one major one should be that there must be a true reckoning of the old populist paradigm inculcated into the reform design.

For example, a major reason why too many got hung up over the swap was it was so complicated. It was made needlessly complicated because the populist mindset of the past has created a crazy quilt of exemptions on all kinds of taxes. This made reform based upon income tax elimination bureaucratically intensive, sowed confusion, and made it easier for opponents to focus on costs to each group separately while obscuring the overall, holistic benefits not just to these groups but the state.

Because of that interlocking, reform must happen in stages to loosen it. Thus, sales tax reform could happen first, by getting rid of many exemptions, making it broader to include services, and then lowering the state rate. Next, the same (in the form of removing many exemptions and going to a flat, lower rate) could happen to income taxes, although the populist legacy here that, among other things, ridiculously provides freedom from tax on pension income from government may prevent the rate from going to zero as Jindal had wanted. Finally, perhaps the zero rate could be extended to a certain point to higher income levels if the state introduced an authorized, but never charged, state property tax. By taking a swap in stages, it’s easier to understand the costs and benefits.

It also would help that the state could be in a stronger fiscal condition although that is a chicken-and-egg proposition as without these reforms it is much less likely to get to that position. But especially if Republicans gain unified control of national government by 2017, the Pres. Barack Obama-led experiment that seeks to reduce individual autonomy in favor of government control over individuals and deemphasizes growth of wealth for all in favor of redistribution soon hopefully will be terminated, and the state’s fiscal health should improve independently of whatever its economic policies will be, perhaps providing this opportunity. The only thing that consistently trumps populism’s redistributive impulse is when the pie expands so groups gain not by having more shoveled to them from another, but when all gain by taking less from them. In any event, political reality that no effort will be made before 2016 may buy time for these increased revenues to appear.

Certainly the uninformed, unwise, and/or politically cowardly opposition to the concept of the tax swap directly led to spending $800,000 without beneficial policy change. But the money will become wasted only if tax reform efforts along the lines above do not continue in the coming years.

Interested in more news from Louisiana? We've got you covered! See More Louisiana News
Previous Article
Next Article
Join the Conversation - Download the Speakeasy App.

Trending on The Hayride