I’ll have to make a little bit of an apology here, because I’m preoccupied with finishing From Hellmarsh With Love, which is the new novel (it’s actually serializing right now at The American Spectator and you can check out the first four installments here, and you can also pre-order a signed copy here), and that effort has taken my focus off the campaign Gov. Jeff Landry is waging to get a tax reform plan passed.
I don’t have a whole lot to say about the plan, mostly because I haven’t studied it. And also because as everybody knows it’s always very unlikely that any major reform program will pass into law intact from its initial iteration. Something like this thing, a complex revision of the state’s tax code, is inevitably going to change shapes and sizes quite a few times before we really know what it’s going to look like.
But there is a plan out, and Landry is doing what he can to drum up support for it. He’s been holding press conferences, yesterday he did a full hour on the Moon Griffon Show to push the plan, and he’s wooing as many legislators as he can in advance of a special legislative session he’s going to call next month to work on passage of a tax reform.
The elements of the plan include…
- Extending the John Bel Edwards 0.45 cent sales tax hike that’s supposed to roll off the books next year
- Dumping some business taxes, including the corporate franchise tax
- Shrinking and flattening the personal and corporate income tax rates to a 3 percent rate for personal income taxes and 5 percent for corporate income taxes
- Boosting the standard deduction on state income taxes from $4,500 to $12,500, and to $25,000 for senior citizens
- Broadening the sales tax base by imposing sales taxes on “luxury” items like streaming subscriptions and dog grooming
- Killing a host of tax breaks aimed at economic development, the big one being the Motion Picture Investor Tax Credit
The aim of this reform package is to make it more of a tax swap than a tax cut.
Again, I haven’t pored through this package yet and I don’t have a detailed understanding of it. So all I have is a few take-it-with-a-grain-of-salt observations.
But what I will say is that were this thing to pass as it’s currently being offered, it probably represents an improvement to what’s currently on the books. I’m generally in favor of the idea that you can trade higher sales taxes for lower income taxes.
If you do that, you’re taxing consumption rather than production. Louisiana needs more production in its economy, and whatever you tax you’ll get less of.
So while they’re lowering and flattening the income tax rates, what I want to see is a blueprint for phasing them out altogether. And if that means the Bel Edwards 0.45 cent sales tax hike stays on the books, I can live with it.
Tennessee has high sales taxes but no income tax. If our tax code ends up looking like Tennessee’s, I’m fine with that. If our economy ends up looking like Tennessee’s, even better. They’ve been kicking our ass with respect to economic and population growth for a very long time.
That’s a different model than Texas, where the tax profile relies a lot more heavily on local property taxes, and while people complain about high property taxes in Texas it’s still probably a better system overall. Property taxes tend to be a lot more stable, and with those being local, they’re subject to the vote of the community. If the local government isn’t delivering value for those taxes, the tax renewal might very well fail. That kind of accountability has driven some pretty good performance on the other side of the Sabine.
The problem is that Louisiana’s municipal governments are nowhere near competent enough to perform like the ones in Texas do, and that’s going to have to start changing before we start moving toward a tax system like Texas has. Dumping homestead exemptions and raising property tax rates to pay for more locally-based government would be an almost certain disaster in, for example, New Orleans.
So the Bel Edwards 0.45 isn’t all that big a sticking point for me so long as I can see the pot of gold – getting rid of the state income tax – at the end of the rainbow. From a PR standpoint, though, it’s not going to be all that well-received. I don’t know of a single Republican legislator who got elected last year on the idea that he or she would vote to renew that tax hike. I think you can sell the idea that you’re cutting taxes elsewhere and get beyond that. Maybe.
But I do have a couple of concerns about this idea of broadening the sales tax base.
Landry – and the legislators – are going to get buried under an avalanche of lobbying by all kinds of special interests who’ll be demanding cutouts from this imposition of sales taxes on services they provide. And that’s a problem, because the way this usually works is that the cool-kid interest groups with the high-priced lobbyists always get their way, while ordinary folks who aren’t as connected get screwed. The dog groomers don’t have much of a lobby, but the trial lawyers do.
So are they really going to be able to tell those special interests no? Historically, it doesn’t work that way.
But the other thing about imposing sales taxes on “luxury” items is that this is going to mostly fall on people who voted for Jeff Landry. You’re broadening the standard deduction so you help poor people, then you’re taxing things that middle class people and up are buying while keeping a 0.45 cent sales tax in place that was supposed to go away.
Maybe that’s not going to generate much opposition. But politically, it seems to me like they’re punishing their own voters. I see Republicans doing this all the time and I’ve never understood why they want to do that. You want to reward your voters and punish the opposition. At least that’s the way Democrats work.
And the big issue here is that this is based on the idea of a tax swap. Why a tax swap? Why not a tax cut?
I get that part of what’s being done here is to reorient the state tax code so that you have a lot better mechanism to cut taxes later on. That, I’m good with. But a tax cut now is better than a tax cut later, because tax cuts confer benefits in the way of economic and population growth. Every time the federal government has cut taxes they’ve increased revenue, because people who keep more of their money tend to do more productive things with that money than the government would do with it, and in the aggregate that means producing more jobs, attracting more capital, making and building nicer things, and so on.
We never seem to have that mentality in Louisiana. It’s always the priority that we need to make sure the state government is funded.
Except the state government is never “funded.” These people went from $29 billion to $48 billion in state budget during the time John Bel Edwards was the governor and they’re still whining about a “fiscal cliff.” And now you have colleges talking about how they need $2 billion for building repairs at a time when the enrollments are way down.
Where’d all that money go? Nobody can tell you.
You ask me, before I even start on tax reform I’m going to lop off a minimum of 10 percent of state spending in every department, with a focus on shrinking the tooth-to-tail ratio. I’m going to squeeze out a performance level that’s as close to a private-sector standard as I can get, meaning that I’m going to demand teachers, cops, firemen, transportation workers and everybody else catching a check from the state do more with less.
When I’m not busy re-examining whether some of these departments and sub-agencies don’t need to just go away altogether.
And after I’ve scrubbed the budget by, say, $1.5 or $2 billion a year, then I’m going to make structural tax cuts so that money is never coming back into the state’s coffers and whatever governmental growth might come in the future will come at the local level.
But that’s just me, and I’m never going to run for office. And I’m not saying Landry isn’t doing some of this on his own. Like I said, I haven’t combed through his plan in full yet, because I’m so busy working on the novel.
And like I said, on the whole, I think his plan probably does move the ball forward.
But we’ll have to see what happens at that special session next month.