Memo To Republican State Legislators: Please Stop Trying To Help John Bel Edwards Raise Taxes

Last week Louisiana’s governor took it on the chin at the state legislature.

John Bel Edwards’ signature piece of legislation in this year’s session at the Capitol, a gross receipts tax on business he styled as a Commercial Activity Tax, was pulled by its sponsor without even a vote in the House Ways and Means Committee, so lopsided was sentiment against the tax and its $800 million or more in increased burden against Louisiana businesses. Even Democrats were less than enthusiastic about the bill.

And with the defeat of that tax increase, it looked as if the prospect of higher taxes to support bigger government was a dead letter in this session.

This is a good thing, in case you aren’t up to speed. Here’s how the state of Louisiana’s budget has been explained to us – earlier this year, the legislature put a budget together in a special session after mid-year budget cuts which essentially amounted to $9.1 billion for the state’s general fund expenditures. Yes, Louisiana’s overall budget usually ranges from $25 billion to $29 billion, but that’s counting federal dollars and dedicated money – the actual budget is in the $9-10 billion range.

At $9.1 billion for 2016-17, Louisiana’s budget is more or less balanced.

The Revenue Estimating Conference, the panel of legislators and economists which projects Louisiana’s tax revenues and has been wrong some 15 times over the past nine years, estimates the general fund revenues to be $9.4 billion for 2017-18. Again, the REC is almost always wrong.

As such, the House Appropriations Committee’s strategy is to hold back some 2-3 percent of the budget rather than appropriate all $9.4 billion; that way, if the REC turns out to be wrong perhaps there won’t be any devastating mid-year budget cuts. In other words, they want to appropriate about $9.1 billion, which is the same number for next year they ended up appropriating this year.

That’s called a “standstill” budget. It allows for a few pay raises here and there, paid for by efficiencies within department budgets. Chief among those efficiencies is for agencies within state government to stop budgeting for unfilled jobs within their staffs – some of those agencies have budgets for hundreds of positions they haven’t hired people for. They obviously don’t need to fill a lot of those jobs, but don’t want to give the money back that was appropriated for them. In a pinch, they can withstand a little austerity.

So that’s the position of the House leadership.

The governor’s position is the budget is more than $400 million in the hole. Why? Because he wants to spend around $9.9 billion. He has a long wish list of things he would like to spend money on and he wants to grow revenues large enough to meet the growth in state government he envisions. Since the state’s current tax base doesn’t produce enough revenue to satisfy those cravings, he says he needs more taxes.

Louisiana’s media has not reported the state’s budget situation in this way at all. What Louisiana’s media has said is the state is in a budget hole that will only get worse when the “temporary” sales tax increase passed last year is set to expire.

Never has it been explained why Louisiana keeps raising taxes and Louisiana keeps having a budget deficit. The fact the deficit exists because the governor insists on spending more and more money is not reported.

Under these circumstances, the politically smart thing for the House leadership to do is to stand its ground in support of a standstill budget, kill all potential tax-raising measures and insist on some fiscal discipline. When the budget leaves the House and goes to the Senate, Edwards’ henchman Senate President John Alario and his Democrat committee chairmen will insure that the fat be placed back in the budget – but the Senate will be hamstrung by the fact the House won’t have passed any taxes to fund any budget increases, and therefore in order to spend what Edwards wants to spend they’ll have to come up with fancy accounting tricks, one-time money and so on.

So the House has, to an extent, an advantage.

This will all work out pretty well for Louisiana taxpayers so long as the House sticks to the plan. Which is why when Kenny Havard, a Republican representative from St. Francisville, brought out a $200 million tax on business last week you could almost hear the teeth grinding at the Capitol.

One concept in which Barras said House lawmakers have expressed interest comes from Rep. Kenny Havard, R-St. Francisville. Havard’s bill, up for debate Monday, would enact a new business tax for larger companies that file their taxes through the state’s corporate income and franchise tax laws. The income and franchise taxes would go away, replaced with what Havard calls a “profit margins tax.”

Companies would be unable to take advantage of loopholes that let them shift losses around to lower their Louisiana tax payments. Instead, the state would calculate a tax off a business’ federal taxable income.

Havard expects that with changes his business tax would raise about $200 million more a year for state coffers. He called that “a good tradeoff for tax reform, which is what we promised the people we would do.”

Guess what’s a better tradeoff? Less taxes and less spending. That isn’t a revolutionary idea, you know.

There is some sentiment in favor of putting a tax in place that will take up some of the slack from last year’s sales taxes expiring next year. But the dirty little secret about those sales tax increases is the Republicans aren’t getting calls about them. Their constituents aren’t all that angry. The Democrats are getting calls, which is one reason why Democrat opposition is what’s killing Edwards’ proposed gas tax increase, but the Republicans are mostly quiet.

Meaning that right now there is no particular reason for the Republicans to oppose extending the current sales tax status quo until 2020, when a full-on structural tax reform could be had as part of a constitutional convention called by a new governor. That’s when fundamental debates can be had about the role and scope of state government, and the future of the state’s homestead exemption (the smartest call Louisiana could make on taxation would be to set the homestead exemption free and let the parishes decide what it should be within their borders; that way this state could run on local property taxes the way Texas does) along with other things.

Anything else they would do this year is merely to bail out the Democrat governor who demands to grow government and collect higher taxes to pay for it.

Nobody ought to support Havard’s tax increase. Nobody ought to support any tax increases this year. Louisiana’s taxes are already far too high. Make Edwards cut his budget and live within his means. If you make that demand and mean it, you might actually win the fight.

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