I say this all the time, but if you’re Louisiana and right next door you’ve got Texas, with its dynamic economy and friendly tax code that includes zero income tax, you’re not free to just raise taxes any time you think you’re going to run a budget deficit.
Because when you do that, you’re only really raising your rates. You’re not really raising revenues. You’re just driving capital and productive people across the Sabine River to the Lone Star State.
Ergo, raising Texas.
And we just saw that in the legislative session that finished on Thursday. Faced with a $1.6 billion budget deficit which arose largely because of runaway pension costs and a drop in the price of oil, the Louisiana legislature raised – it hopes! – some $900 million in taxes mostly by sticking it to business.
That $900 million won’t materialize, of course, because companies are going to do everything they can to avoid having to take the hit to their bottom line. Those greedy business owners out there would rather try to expand their operations and hire more people, or even pay their people more so they won’t take other jobs, or pay off debt or buy new trucks, etc., than pay the government more for the same level of services they’re currently getting.
So when the legislature says they’re going to eliminate some 28 percent of the tax credit washing away the cost of inventory taxes, for example, that isn’t going to produce 28 percent more revenue. Those companies who have had their inventory tax reimbursed by the state after getting socked by local governments – and the inventory tax as a subsidy to local governments by the state is now a half-billion dollar program in Louisiana – are simply going to move that inventory out of the state so as not to be taxed for it.
Here’s a business idea – warehouses for inventory storage in Woodville, Vicksburg and Picayune, Mississippi. Or Carthage and West Orange in Texas. Cars, grocery items, industrial pipe, retail goods, appliances, you name it. The only markets of any size in Louisiana that aren’t within an hour of the border are Houma, Lafayette and Alexandria, and none of them are all that far away, so every business subject to getting pounded by the inventory tax will at least listen to someone who can offer them relief from a 28 percent tax hit.
And that’s the businesses who don’t already have a plan in place. I talked to somebody in the electrical equipment business recently who said they don’t keep inventory here now; they keep it in Mississippi. Why? Because while the state might have been reimbursing 100 percent of the cost of the inventory tax the local governments charge, in Mississippi they don’t have the tax at all. And so even if you don’t actually have to pay the tax as a Louisiana business because you get reimbursed, you still have to do all the paperwork to prepare for the assessment. That’s a waste of labor, so rather than doing it they’ve got their inventory safe across the border where they don’t have to report every last item to the government and they just run trucks all day to their locations in southeast Louisiana. Use a just-in-time inventory method and leverage technology to keep track of what’s moving, and it works like a charm.
Think you’re going to increase revenues from that guy by 28 percent? Think again. He’s a lot smarter than Katrina Jackson and Jack Montoucet and Joel Robideaux, particularly when it’s his money they’re trying to plunder.
But the geniuses in the legislature are counting on raising some $360 million in revenue over the next three years – it’s over three years, because their strategy to get around the legal infirmity of these tax increases coming to life without the constitutionally-required two-thirds vote of the legislature was to sunset these hikes after three years and thus declare them mere suspensions of tax breaks. They’re not getting $360 million in revenue out of that tax hike like they’re planning – it won’t even be close.
But they’re going for it. And they’re also going for $107 million a year in tax increases from reducing the sales tax exemption on business utilities. So every business that has a light bill will now have to pay one percent more for the privilege of using electricity in Louisiana. Certainly, they’ll be happy to do so in order to fund a public school system which currently carries the 25th highest per-student funding burden in the country but generates the 48th best outcomes, right?
Nah, probably not. Rather than that they’ll try to cut down on energy use, which might be a good thing except it means the state doesn’t collect the full $107 million they expected they would and spent some $85 million of it on MORE money for the ridiculously wasteful K-12 education system. Or they’ll scale back on things like energy-intensive industrial capital expansions, which could create more jobs and thus more income tax revenue to the state or a bigger physical plant and thus more property tax to local governments, or they’d buy more stuff for their operations and thus generate more sales tax. Nope – they won’t do that if they’re just going to end up paying more money to government for the same crappy level of service they currently get.
Or they’ll spend the money investing across the Sabine River in Texas – where it’s already a more advantageous tax climate. And oh, by the way, while Louisiana was raising $900 million – the leges hope! – in taxes, Texas just cut $4 billion off their citizens’ burden…
Gov. Greg Abbott signed more than $4 billion in tax cuts for business and homeowners into law Monday morning. The bill cuts the business franchise tax by 25 percent and also send billions of dollars toward local school districts so property taxpayers don’t have to pay as much.
This comes a week after Abbott sent a letter to Connecticut-based General Electric hoping that these tax cuts lure the huge business to Texas.
“Have not heard back from GE yet,” said Abbott. “I look forward to visiting with them in person soon to explain to them how much more affordable Texas is than Connecticut, how much better Texas is as a state to do business in than Connecticut.”
Afterward, the governor got to try the latest in virtual reality — built at AMD Technology. He also hopes these cuts bring more tech companies to Texas.
Some $1.5 billion of the tax cut comes from a 25 percent reduction of the corporate franchise tax, which is what Texas charges businesses to operate there. Louisiana has both a corporate income tax and a corporate franchise tax; there was an effort to phase out the corporate franchise tax this year but that failed. In Texas they’ve got no corporate income tax and now they’re cutting the corporate franchise tax by a quarter, giving the average Texas business which pays the corporate franchise tax a $10,000 break, while Louisiana has both and just cut exemptions from other taxes for businesses by 25-28 percent.
Think we’re moving in the right direction? Texas sure thinks we are.
They’ve got it going so well over there that they’re also raising the homestead exemption and saving homeowners some $2.5 billion a year. The average break will be $125 a year for about two-thirds of the state’s citizens, who own their homes.
Meanwhile Louisiana’s legislature is rifling through everybody’s pockets to pay for an inefficient, ineffective and stupid government that employs far too many people at far too little productivity, funds far too many mediocre – or worse – institutions, spreads cash out in slush-fund fashion to politically connected cronies in countless ways and does almost none of its core functions well.
And without any substantial reforms to that lousy product this year, we’re raising $900 million in taxes, mostly on business. And Texas is giving its business community a $1.5 billion tax cut.
Which place would you rather invest your capital in to get a venture off the ground?
Our stupid politicians think they just raised taxes to solve their fiscal problems. What they really did was raise Texas. And when those jobs and that capital goes across the border, it’s going to be a helluva struggle to get them back.