Monday saw some interesting – which doesn’t necessarily mean positive – developments as Louisiana’s tax reform special session continues toward some sort of resolution.
Most important among them was the stalling of HB 9, the bill that would “broaden the base” of the state’s sales tax to include a host of things which are not currently taxed. That bill doesn’t have the 70 votes in the House to pass as of right now.
The House has passed much of Governor Landry’s tax reform plan. But one component of it is proving to be a hard sell in the house, and it could derail the whole thing. The House did not vote on HB9 Monday, pushing it to Tuesday. HB9 is the bill that would broaden the sales tax base to include 41 services not currently being taxed. The vote was previously delayed last week when there was not enough support for it. Pollster Bernie Pinsonat says taxing new services appears to be dead, so the House may be discussing a plan B, which would involve a previously-passed provision via HB10 to keep the sunsetting 0.45% sales tax increase and reducing it to 0.40%. “There’s the possibility they may scrap that and go to a full penny,” says Pinsonat. “The rumor is they would raise a lot of new revenue with the one penny, which would replace the 0.45.” Pinsonat says those proposing such a move are saying that people would actually come out even given the reduction of the state personal income tax, which has already passed the House and is being considered by the Senate. “They’re saying that the new half-penny that’s being added would be offset by reducing people’s income tax,” Pinsonat says, “so they’re saying it’s a tax swap or a tax trade-off.” Louisianians already pay some of the highest sales taxes in the country, and this move would make them even higher. “It would move us to an (average) 11-cent sales tax,” says Pinsonat. The eleven-cent sales tax is when you combine local sales taxes with a proposed five-cent sales tax.
Pinsonat is saying the whole thing collapses without the pay-fors like HB 9.
We’re not sure that’s true, and in fact it’s been our expectation all along that this will end in a budget deficit Landry will have six months to resolve by cutting spending – which we’ve been advocating all along.
The joke goes that if you’re a slow learner, at least be a learner.
A budget deficit is probably the only leverage you’re going to ever have that would work in motivating these people to cut spending.
What ought to be said here is something Moon Griffon noted in an offline conversation we had earlier today – which is that while we’re scratching our heads a little over the Landry administration’s reticence to simply take a meat cleaver to the state budget, none of this is Landry’s fault.
It really isn’t. He’s trying to navigate his way through an abject mess left to him by John Bel Edwards, whose eight years was absolutely catastrophic from an economic competitiveness and fiscal responsibility standpoint.
Edwards took what was already a disadvantageous tax system with a state income tax and an inventory tax, and a state budget which, even though Bobby Jindal had spent eight years ratcheting it down from all-time highs based first on Katrina recovery dollars and then Obama stimulus money, which the state legislature had stupidly insisted on applying to recurring expenses, was still largely out of shape, and Edwards utterly wrecked Louisiana’s fiscal house.
Oh, you won’t hear that anywhere else. The narrative spun by the state’s legacy, left-wing NGO-funded media is that it was Bobby Jindal who destroyed Louisiana’s public sector, and Edwards set that house back in order.
Which is an utter and complete lie.
Our budget is triple now what it was when Mike Foster was governor and our population has hardly budged. In that time you’d be hard-pressed to find a single entity within Louisiana’s public sector which performs markedly better than it did 20 years ago.
Some of the K-12 public schools have improved. Other than that, there isn’t anything you’d say has gotten night-and-day better. And when Edwards was all but doubling Louisiana’s budget, mostly because he put the working and middle classes onto the Obamacare Medicaid plan which has crushed private health insurance in the state and done virtually nothing for access to health care – rather than regular doctor visits for minor things we instead have jam-packed emergency rooms because Medicaid patients get totally free ER visits at a maximum expense to the taxpayer – he did nothing to give the people of the state bang for our buck.
That, in a nutshell, is how Edwards turbocharged Louisiana’s outmigration problem, to such an extent that he ran off essentially the population of Lafayette in net outmigration over his time in office.
We have a much bigger public sector now, but it isn’t a better-functioning public sector. And it bleeds our private sector dry.
This is why there’s a special session going on in the first place. Everybody recognizes that without a tax reform of significance there is no chance of reversing Louisiana’s outmigration problem and putting the state’s economy in position to compete with Texas and Florida and Tennessee.
We might be a little confused why Landry is reluctant to claw back on the size of that parasitical public sector, though we think he’ll ultimately get there, but that doesn’t change the fact that what he’s trying to do is rebuild something which is fundamentally broken.
Louisiana is a smaller and less demonstrative version of, say, what the next regime in charge of Venezuela might face when the Maduro junta is finally deposed. Or those Eastern European countries who found themselves wrecked after throwing off Soviet-dominated communism. We’ve operated on a socialist Huey Long theory of overcentralized state government which legislates and regulates to an impossible level while engaging in predatory taxation of business attenuated by offering corrupt individual bargains in the way of tax breaks to those companies with good lobbyists.
And of course the toughest fight Team Landry is stuck with right now is their attempt to eliminate tax breaks so as to flatten the tax rates and make the place attractive to people and business to locate here.
Those tax breaks are generally corrupt, but what should be understood is how they made it into Louisiana’s tax code in the first place. Our tax system is and has been garbage, and people don’t want to do business here because of it. So in order to generate a little economic activity, or to preserve what’s here in the face of competition from Texas, our legislators in the past set up carve-outs to give reasons not to leave to various players and sectors of our economy.
That wasn’t what was needed. What was needed was a whole new tax code modeled after one of our more successful neighbors. The political will for that has never existed before now. At least now there is an effort to rethink how the state taxes its citizens.
Even that full-penny sales tax plan, as unpalatable as that might strike you to be, combined with a flattening and eventual phase-out of the state income tax, would mirror Tennessee’s approach: Tennessee has no state income tax but high sales taxes, and therefore they could be said to tax consumption rather than production.
An 11-cent combined state and local sales tax rate is way too high, but if that’s in place while things like inventory, corporate franchise and income taxes melt away, you at least have rewired your tax code toward a model we can see working elsewhere. The next step, obviously, would be to cut spending so that 11 cents ratchets down to 10.5 cents, then 10 cents, then something smaller.
The point is, you’d have a true tax reform, and when you have spending reform to match you’re getting close to competitiveness.
And this is hard. Very hard. Because the narrative is that an Edwards-style budget of $50 billion, where Louisiana is essentially a welfare state paid for by a federal government $35 trillion in debt, is “right-sized,” and any effort to cut it is evidence of cruelty and heartlessness.
While ordinary Louisianans are forced to move away for lack of good job opportunities here because our shriveled private sector can’t support the weight of that “right-sized” public sector.
We aren’t going to bash anyone for trying to fix this, regardless of how flawed the attempts might be.
Do we wish Landry was a Cajun Javier Milei? Do we wish he’d gone in as governor and laid off whole agencies? Absolutely. Is that very realistic? Would Landry have managed to weather the inevitable revolt from the public sector that would have engendered? It’s hard to say.
Milei is an inspiration, and his government-slashing reforms in Argentina are going to work. But it would be utterly naive to claim everything in that country is going smoothly. Cutting government is messy, painful and dangerous given the enemies it makes.
We’ll give these folks space to find a good way through the muck Edwards left them. And while we still think the answer is in cutting spending, and we’d still bet that’s how this eventually ends up going, there is much maneuvering to do before we get there.
Oh, and we’ll leave you with this, which is Rep. Clay Higgins saying something similar in exhorting the governor and the state’s legislators to be calm and patient and get it worked out…
Be calm and work together to reduce government spending and embrace conservative fiscal reform. pic.twitter.com/xLzLlX8QOI
— Rep. Clay Higgins (@RepClayHiggins) November 18, 2024