APPEL: What’s The Point Of Tax Reform, Then, Governor?

Governor Edwards says that he is OK with tax reform as long as it does not lower taxes. He says he is trying to prevent the recurrence of the “structural” deficit that he inherited.

What is he talking about? When he ran the first time, he promised us all that he knew the budget inside and out and that there would be no need for tax increases. That was about $16.2 billion in higher spending and $3.4 billion in higher state taxes ago.

According to the governor once elected he suddenly discovered that Governor Jindal had left him structural deficits. So, I suppose in his campaign he was either lying to us when he claimed to know the budget or else, he really did not know it. Either way we were hoodwinked.

Let us ignore that Edwards was in the Legislature and played an integral part of budget negotiations during all of Jindal’s time so that we can discuss what a “structural” deficit really is.

Almost a hundred years ago, in the days of Huey Long, Louisiana was one of the first states to tap into untold riches from fossil fuels. For generations, our politicians were able to spend (and steal) as they saw fit, relying on petro-dollars to pay the tab. The people loved it, they got lots of government goodies that they did not have to pay for. The politicians loved it, as long as they could bring home the bacon they were maintained in power. The whole equation of governance was built around, as the Romans used to say, donatives.

Suddenly in the late 20th century the bottom fell out of the supply of revenues from fossil fuels. The politicians scrambled, they did not want to end the spending spree, but they had no money, that is until Katrina left a windfall of money in its wake. For a couple of years after Katrina the then governor and legislature increased state spending like the funds would never dry up. Worse they foolishly increased recurring and growing spending without any confidence of where the future money would come from.

And then the bottom fell out again when the Katrina money went away. Once again, the state was in dire straits since it could not maintain the spending levels with no matching revenue.

The election of Governor Jindal in 2008 offered a way out. Jindal’s promise to the people was that he would wean Louisiana off of the Katrina largesse and get spending back into line with reasonable revenue expectations without raising taxes. And within four years he had proved his point. The public appreciated his efforts and awarded him with a 71% re-election win.

When Governor Edwards entered office in 2016 his first goal was to reverse Jindal’s frugal spending policies and return to the bad old days of free spending. His real problem was that because the state had for generations been focused on populism at the expense of business, Louisiana had missed the economic revival that was known the New South. After the windfall, the state’s revenue picture was not entirely unlike the time before Katrina; a slow economy generating limited state revenues, low personal taxes, and rapidly declining revenues from fossil fuels.

What was the governor to do? Since he was emulating old school populist politicians, the answer was clear. With the help of a friendly media, he created the myth of the “structural” deficit. Ironically, Jindal had helped him immeasurably. When Jindal turned his back on Louisiana to chase his own ambitions, his popularity had plummeted, as the media blamed his reductions of spending for the end of so many freebies, the people forgot why they gave him such an endorsement in his re-election. It became a reliable talking point for the governor to blame an undefined “structural” deficit on Jindal and no one challenged it.

With that brief history in place did we ever have a structural deficit. Actually, there is no such thing as “structural”. Government and politics are constantly in flux, what in a political catch phrase is structural, just requires the political courage and skill to change the law.

Because he sought to reverse Jindal’s hard line on controlling spending, he created a deficit, it was just an ordinary deficit. Governor Edwards had two options to address this self-induced shortfall, but to him only one choice. His choice? In his five years in office, he has persuaded the legislature to increase spending by that $16.2 bn and taxes by that $3.4 bn. And showing no signs of wanting to leave office with a control on spending or with spending matching reasonable revenue, that trend will continue.

That was his choice, but not his only option.

His other option would have been to reform Louisiana in order to grow the economy. Growth would have increased state revenues to feed his spending habit. He ignored that possibility and so we will have to wait until another day to finally recognize that government revenues rise when people prosper.
When Edwards took office, did we have a deficit? Of course, as long as we were going to increase spending, we were going to have a deficit.

Was it a structural deficit? I maintain that there is no such thing, that deficits exist only as long as we do not reduce spending to match revenue or as long as we do not increase revenue through taxes or economic growth.

There is nothing about any deficit that makes it permanent or immutable as the word structural implies. We never had a structural deficit; we had a governor who wanted to return to days of lots of government freebies, but that did not have a fossil fuel industry to provide him the resources to do so. And when the next governor comes to office, he or she will have to address the budget situation at that time.

As we face another extraordinary event brought on by incoming COVID windfall, we must be mindful of the history of Katrina. Under a governor who believes in spending with no regard to long term consequences, the urge to spend on recurring expenses (growing government programs, big raises, increasing transfer payments, etc.) must be tempered by the understanding that the Federal money is one time and will dry up soon. Our legislators must not allow the governor and the media to trick us again with catchy, though fundamentally fake, political phrases like structural deficits.

As long as spending is not kept in line with revenue, we will always have deficits. A tax and spend governor like Edwards can fend off fiscal calamity for as long as the people are willing to allow their pockets to be picked, but that too will eventually end.

And as long as we bounce from crisis windfall to crisis windfall, without making structural (I chose the word carefully) changes to our fiscal philosophy, we may never see the political courage to address what is just bad governing.

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