On Friday, state representative-elect Richard Nelson, who last month won the race to succeed Reid Falconer in House District 89, penned a letter to the editor at The Advocate outlining a vision for Louisiana’s future we hope is echoed by most of Louisiana’s legislature and, eventually, the public at large.
Some of what Nelson is arguing for is going to require a bitter political struggle to make a reality, which is too bad. What he’s talking about is making Louisiana look a lot more like our more-successful neighbors.
Nelson makes two main points which are spot on. Excerpts follow…
Bold action is required if we want a bright future rather than one at the bottom of every ranking. The most important step to achieve this goal is to eliminate the state income tax, creating a competitive business environment and empowering local communities.
Louisiana is at a crossroads. For generations, we have depended on our natural resources and hardworking people to bankroll an inefficient state government. Now we must show the political courage to fundamentally reform policies that are hindering the state’s economic growth. The state income tax is a tax on success. Louisiana’s 6% personal and 8% corporate income tax rate force successful companies to leave Louisiana and encourage those looking to invest to go elsewhere. We must eliminate the income tax to compete with our neighbor states, especially income tax-free Texas.
Louisiana’s state income tax would be a negative to its economic competitiveness no matter where we were located. But when you’re next door to Texas, just down the Mississippi River from Tennessee and only four hours on I-10 from Florida, none of whom have state income taxes, it’s especially a problem to have one. Unless and until those states implement a state income tax, which they won’t, ours will prevent us from competing with them as effectively as we need to.
At a minimum, the income tax needs to be flattened in the next fiscal session. Then it needs to be phased out as quickly as possible.
It might take another statewide election cycle to produce enough of a legislative consensus to get this done. It needs to be at least a long-term goal to make it happen.
This change would also give us the opportunity to address another issue: our dependency on the state to fund local priorities. Lost income tax revenue would have to be offset, and local transfers are the best place to start. Local needs are best funded with local tax dollars directly from the people they support. For example, instead of convincing representatives from New Orleans that Shreveport needs a new road, the citizens of Shreveport could simply raise the money themselves. Your tax dollars stay in your community, rather than going to the roulette wheel of state government that currently decides the winners and losers.
Local property taxes are the best source to make up for income tax-funded state payments. Property taxes are superior to income taxes in that you can control the size of your tax bill by the size of your house, without discouraging work. Property tax bills also show exactly where each dollar goes, and rates can be customized to each locality. This shift would give citizens the freedom to set their own tax rates without having to beg for their own tax money back from the state.
This is harder, and it’s going to take extremely smart, articulate leadership to build a consensus for reorienting Louisiana’s governing structure toward local governments and away from the state capitol.
Because that’s what Nelson is talking about here. He’s saying the state’s tax burden, in large measure, needs to shift from state income taxes to local property taxes.
That’s what you have in Texas, for example. Property taxes in the Lone Star State are sky-high compared to what they are in Louisiana, and Texas doesn’t have anything like the $75,000 homestead exemption we have here.
The difference is that in Texas, the property taxes you pay, you voted on locally. So the people catching those taxes have to provide you with value for that money, or else they’re going to either lose you as a taxpayer (it’s no big deal to move to the next county or local taxing district) or they’re going to lose the election when those taxes are up for renewal. That’s why the local roadways in that state are quite good and being improved all the time, and it’s why Texas’ public schools are outstanding, the effect of which being that the $6,000 or $8,000 or more per child per year so many Louisianans are compelled to spend on private schools isn’t really necessary in Texas.
Have a couple of kids, and that tuition bill can run to 15-20K per year or more. Unless you’re in a million-dollar house, your Texas property tax isn’t going to cost more than that tuition bill will. Plus you don’t have a state income tax there.
It gets really easy to see why entrepreneurs and upscale professionals would rather live in Houston, Dallas or Austin than New Orleans, Baton Rouge or Shreveport, notwithstanding the difference in business climate in those cities.
But let’s not kid ourselves about how an attempt to make Louisiana like Texas would play out politically. The minute you start talking about reorienting things toward local property taxes, you will see the issue demagogued. First come the champions of that $75,000 homestead exemption, and they’ll be screaming that the politicians are coming to rob you of your hard-earned money through killing Louisiana’s great gift to its taxpayers.
Except that’s not such a great gift. That homestead exemption means some 80 percent of the property tax paid in Louisiana is paid by businesses, and you can imagine what that does to the state’s economic competitiveness. You can also imagine what it does to profit margins of Louisiana businesses, and when they don’t make the profits they ought to be making their employees don’t get paid what they ought to make. So there’s that problem.
Additionally, with that homestead exemption being so high, especially in smaller and less-populated parishes in the state it means property taxes are paid by a relatively small number of people. In some places the vast majority of the property tax is paid by only a few families. Know what that leads to? Corruption, of course. Those families buy up the assessor, and they get property valuations which aren’t realistic. The local government doesn’t get the tax revenue it should and lacks the budget to provide the kind of services citizens ought to have.
And what do we get from that? We get a need for the state government to come in and bail out the local governments. Which, as Nelson says, is where a giant swath of Louisiana’s spending comes from. The Minimum Foundation Program, for example, supplements local public school budgets to the tune of almost $4 billion per year, and very little in the MFP actually promotes quality in public education. Its formula actually does the opposite; part of how the MFP funds local public school involves the number of kids in a school district who are on free or reduced-price school lunches, so those districts are actually encouraged to have a larger number of poor kids.
Given that it’s middle class families who are usually mobile and can relocate to good school districts, what’s the incentive to make the schools good? The state picks up the tab if your bad schools trash your local economy and hollow out its middle class.
And there are other things, like practically every road of size in Louisiana is a state highway, which is not the case elsewhere, or that rural parishes get police cars and fire trucks paid for by the state on a constant basis, or that the state pays for supplemental pay for first responders – something John Bel Edwards demagogued Eddie Rispone to death in the runoff of this year’s gubernatorial campaign for. Rispone made the mistake of running on the idea of a constitutional convention, and Edwards’ camp figured that was a good opportunity to smear him as trying to cut cops’ pay.
Well, it’s not a question of trying to steal supplemental pay for first responders. It’s a question of whether the state is the proper payor of what are local employees. That applies to this meager teacher pay raise Edwards demanded from the legislature this past year as well. These things shouldn’t be decided at the capitol, they ought to be decided in the Parish Council chamber or at the local school board.
Our local governments are almost universally incompetent and brazenly moronic. There’s are reason for it – with everything the state does for them, you can get away with being a moron and sit on a parish council in Louisiana, because there isn’t much difference in effectiveness between a moron and a functional adult. See how things work in other states, with their local governments, compared to here and it’s an eye-opener.
Our idea is to start the process of transitioning Louisiana from state income taxes to local property taxes, as Nelson suggests, by setting the homestead exemption free of that state level of $75,000. Meaning, let each parish peg that number where they want to. In Tensas Parish, the homestead exemption probably ought to drop precipitously, for example. But in Jefferson or St. Tammany, it might very well rise to $100,000 or more. There is no reason why in a state as diverse as Louisiana you should have a uniform exemption.
Let’s start there and work our way forward. Perhaps experimenting with exemptions and property tax rates will help build competence and accountability for local governments, and those new traits will make for small transformations in how locals handle schools, crime, transportation and drainage.
And as they improve, maybe then we can get the state out of the business of local government welfare, as Nelson suggests. Maybe even one day we can dream of a different state flag, because nothing outlines the fundamental governmental dysfunction of Louisiana better than a state flag depicting a mama pelican bleeding herself at the breast to feed perpetually immature, underdeveloped and totally dependent baby pelicans.
We’re proud of that flag, though few of us ever stop to think about what a terrible message it sends. Let’s fix the reality first.