SADOW: Louisiana Must Grab Growth Opportunities Before It’s Too Late

With $2.26 billion in surplus dollars from last year’s budget and foreseen for this year’s and the next, Louisiana has a chance to jumpstart its economy, following through from the double-edged sword impact of out-of-control Washington spending.

Last month, the state figured it closed out fiscal year 2022 with $727 million more collected than anticipated. A quarter of this is spoken for by the Budget Stabilization Fund and another tenth must go to paying down a portion of the state’s unfunded accrued liabilities, and the rest can go to specified nonrecurring functions including those. A good strategy here would put the nearly $473 million (perhaps a bit less, depending upon another statutory interpretation) towards paying down more of the latter, which would reduce costs to local education agencies that they could use, for example, for pay raises.

As for the $925 million appertaining to this year, $45 million went in the just-finished special session to entice insurers, and the state still owes the federal government $300 million for past flood protection efforts, although it hopes to have this waived. Assuming it doesn’t, for the remainder one advisable strategy would be to bank it for the upcoming FY 2026 sales tax hike roll-off that, according to the state’s forecast, will result in $550 million lower sales tax revenue compared to FY 2025.

Better, it could start the process this upcoming year by lopping off 0.15 cents a year and draw on a third of this leftover cash each year. This looming gap further can be alleviated by easy spending reductions, such as supplementing a planned reduction in the Earned Income Tax Credit in FY 2026 with its elimination.

Then considering FY 2024 projects to have an extra $608 million available on top of all this, a similar idea would use that excess to phase out corporate income and franchise taxes through creating a fund to buffer that over, say, five years. After all, econometric literature largely reveals that corporate income marginal tax rate reductions boost economies, including the most recent study (regardless of other researchers using a dubious cherry-picking selection method to try to wash away the positive impact).

The impact, however, isn’t immediate, unlike personal rate cuts that tend to have an immediate then diminishing effect, but tends to consolidate after five years with lasting impact. Striking these kinds of taxes particularly would benefit Louisiana as it has one of the worse corporate tax regimes among the states as well as one of the worst business tax climates, and it also would reduce administrative headaches spawned by the state’s Byzantine corporate tax code riddled by exceptions that would reduce tax compliance costs for businesses as well.


This path would emulate many other states in how they handled initial Wuhan coronavirus pandemic grant money that presumably would compensate their willingness to lock down their economies and societies which supposedly (but futilely) would combat the pandemic, a strategy subsequently larded up far higher by Washington Democrats with unprecedented debt spending. Like many, Louisiana wisely spent much of its initial $1.386 billion share on backfilling its unemployment trust fund to counter the manufactured employment crisis and also chose to commit a significant portion to capital outlay for largely meritorious uses.

But other states smartly engineered tax cuts to help offset the inflationary pressures the Democrats’ spending orgy induced, directly by leaving more money in people’s pockets by reductions to levies on their incomes or indirectly by reducing corporate rates to reduce price pressure and to give employment a shot in the arm. Louisianans could use those benefits as well, especially as its economy has struggled more than almost any other state’s, particularly reflected in the state’s dismal net migration numbers, since Democrat Gov. John Bel Edwards took office seven years ago.

Next fiscal year, starting the three-year weaning of the 2016 sales tax hike sales tax to produce near-term benefits and a initiating five-year gradual elimination of corporate income and franchise taxes for the same in the long run will guarantee many years of boosting the state’s lagging economy. It’s the opportunity the state has been looking for and it should be grasped firmly.



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