After Governor Dishonor Code took over in January, he called a Special Session to raise taxes in order to close a budget deficit. The Legislature passed much of what he wanted, including new taxes on businesses and a 1 cent increase of the state sales tax. It was supposed to fix the deficit in this year’s budget.
Anyone with a basic knowledge of economics can tell you that tax increases usually don’t bring in the expected revenue. That is because taxes discourage economic activity, which generates revenue for the state. Why should JBE’s tax increases be any different?
It turns out that they weren’t. The state is closing out the year with a $200 million deficit and the projected budget deficit is likely to be even more for next year.
From the AP:
An economist who helps decide Louisiana’s income forecast said the state could close this budget year with a deficit as large as $200 million, heaping new financial worries on lawmakers weighing tax hikes to balance next year’s budget.
Jim Richardson, an LSU economist who serves as the independent member of the state Revenue Estimating Conference, delivered the grim news in a Thursday night meeting with Gov. John Bel Edwards, Senate President John Alario, House Speaker Taylor Barras and others.
If Richardson’s estimate proves correct, the deficit for the current budget year would have to be closed in the financial year that begins July 1, worsening a shortfall already projected by the Edwards administration to be $600 million.
“I hope I’m wrong,” the economist said. “But I didn’t want it to be a surprise.”
Edwards said Friday the latest deficit projection should make lawmakers realize “we’re in no way out of the woods” with the $220 million in taxes passed to address next year’s shortfall, with only five work days remaining in the special legislative session.
“The sense of urgency ought to be increasing every day,” the Democratic governor said.
But it’s not clear if the latest figures will drive more lawmakers in the House, where three tax bills await decisions, to consider supporting the proposed tax changes.
“Could that play? I think it certainly could. I don’t know that it adds any more pressure than they’re already feeling,” said Barras, R-New Iberia. “I’m not sure it swings 10 or 20 votes, but it could impact some.”
Louisiana’s business tax collections are driving the deficit prediction.
Richardson said Louisiana appears on track to collect far less than the $359 million included in the state’s income forecast from corporate income and franchise taxes in the budget year that ends June 30.
“Unless it’s a real miracle, I don’t think we’re going to make it,” Richardson said.
Oil prices have rebounded a bit above the state forecast, but individual income and sales taxes are sluggish, so improving oil prices won’t bail out the state budget, Richardson said.
Of course the play is to raise even more taxes on Louisiana individuals and businesses. The economic development efforts of Texas, Florida, Mississippi, and other states will rewarded.
But that will take a change in the mindset of this state. We need leaders who will put growing the economy over the interests of institutional government. Instead we have a governor that is committed to the institutional government and all of its allied special interests.
Maybe we should actually grow the state’s economy. The current strategy of propping up the bloated state institutions isn’t working.