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‘Business Report’ Publisher: Will ‘tax reform’ work for Louisiana?


March 1, 2017
By Rolfe McCollister
Originally Posted on Greater Baton Rouge Business Report

We just came through another special session that wound down to the last day before a deal was struck to make some cuts and use $99 million of our state’s Rainy Day Fund to fill a $304 million budget gap for the current fiscal year. But the battle will be back on with the start of the regular session on April 10 and another $400 million shortfall projected for the next fiscal year. To stop the merry-go-round, we will have to address the long-awaited and much ballyhooed “tax reform”—which will require tough choices and create a vicious battle. Will it work?

Our history has proven that patronage and poverty in Louisiana have both been very expensive.

Populism may have been good for political careers in the past, but the chickens in our pots have come home to roost.

There will be no easy answers for tax reform. The Task Force on Structural Change in Budget & Tax Policy, chaired by Secretary of Revenue Kimberly Robinson and economist Jim Richardson, issued its report with no real surprises. It has recommendations on sales, income, corporate and ad valorem taxes, as well as economic development incentives, budget and spending practices. There is no silver bullet.

Tax reform is just a means to an end—a brighter and more stable Louisiana that we can build for the future; for our children and grandchildren. But there is no magic in tax reform, and there is a risk of “more harm than good” or unintended consequences.

The Louisiana Association of Business and Industry has said it supports some ideas and questions others, but LABI President and CEO Stephen Waguespack notes, “We must begin to acknowledge that even with an ideal tax code, spending projections are still likely to outpace revenue growth in the years to come.”

This raises a philosophical issue: Does Louisiana want big government or less government, and what are we all willing to spend going forward? And if we can’t afford things provided by the state in the past, do we drop them and let local parishes or institutions (like universities) have the authority to decide if they want to raise the revenue and provide for residents or customers? That would be equivalent to letting the free market work.

With all the bad news, one might think our revenues are falling. But would you be surprised to know that this year’s fiscal year budget—even after the $600 million in midyear reductions—is still over $2 billion more than the 2015-2016 budget? Spending grew more. Many like to claim that “we’ve cut to the bone” and this is simply a partisan problem caused by the anti-tax Republicans. They are wrong. There are options, but most folks don’t want to “go there.” (Merging SUNO and UNO and pension reforms were nixed.) Certainly, we see political games played on both sides, with everyone having their own narrative and set of “numbers,” but this is more than gamesmanship.

1) I think the pundits and critics of the “anti-tax” legislators need to get out, go around the state and talk to voters. These same politicians and media pundits were the ones who thought Hillary Clinton would win the presidency—and totally missed the mood and anger of voters. Louisiana was clearly a “Trump state.” I would argue the “anti-tax” legislators reflect the anti-tax citizens back home in Louisiana. (And please don’t show me a poll—Clinton saw what they were worth.)

2) The public is often told all the “fat” and “waste” has already been cut. But they recently read about four state troopers who detoured to Las Vegas and the Grand Canyon on tax dollars—and turned in overtime charges, too. It appears around 16 employees with the State Police attended the California conference. Are there other examples like this in government? These revelations cause skepticism and a lack of confidence among taxpayers—not to mention anger.

3) The late economist Milton Friedman said, “Nothing is so permanent as a temporary government program.” The same could be said for statutory dedications and exemptions in our state budget. Why do these folks deserve protection for decades-old statutes when there are new priorities?

4) The budget passed last year—under the guidance of Gov. John Bel Edwards—raised taxes, cut TOPS and will end up generating about $2.3 billion more than the year before. Why don’t we talk about what makes government continually grow? Where is the incentive to shrink government or innovate for ways to increase productivity with no cost?

Louisiana government was built on patronage and giving cities and residents everything for free. (It got you re-elected.) In the ’60s the governor made most two-year colleges into four-year universities. Now we have too many, we can’t fund them properly and most of them are graduating less than one-third of their students in six years. It’s unsustainable. Universities today are more about jobs and economics than education, and politicians act as if it’s impossible to get the genie back in the bottle. But a lack of “customers” and increasing online competition will disrupt the model, offer options and punish the lack of performance in the market by these institutions. (Just ask Blockbuster or Kodak how that works.) In other words, get out in front or get left behind. We are at risk.

We have too many people dependent on state government—and not enough independent contributors. Will tax reform change that? Our state and federal governments have no pot of gold. We have built a very populist structure and it’s expensive. We didn’t educate our people for decades, and now we incarcerate many of them for decades. That’s not only very sad, it’s very costly—and the blame can be spread over the last 50 years.

Tax reform is just a means to an end—a brighter and more stable Louisiana that we can build for the future; for our children and grandchildren. But there is no magic in tax reform, and there is a risk of “more harm than good” or unintended consequences. This upcoming session could be a turning point—and the decisions made will show what direction we choose to go.

MAKE IT LOCAL 

The Industrial Tax Exemption Program has always been handled by the state Board of Commerce and Industry (another vestige of the past). But this state board is making decisions on local parish taxes. In Texas, that is done at the county level, and the state is not involved. Say a business has chosen to negotiate to locate in East Baton Rouge Parish, and the taxes involved would only impact East Baton Rouge Parish. So why shouldn’t an East Baton Rouge Parish elected leader, or leaders, make that decision? I think it should be changed.

Louisiana has far too often made business go to the state to get approval or money instead of handling local matters at the local level. This “nanny state” attitude is decades old and serves partly to provide a “power trip” for those in the Capitol. You can see this micromanagement in other areas, too, like with the control of university tuition. (We’re the only state in the union that requires a two-thirds vote of the Legislature to change it). This overregulation seems quite ironic in a red state with a majority of conservative Republicans in both houses. Where is the push for local control (nearest the people) and free market thinking?

As for the ITEP, by executive order of the governor it now has to go to the parish involved and get four approvals, then go back to the Board of C&I and then to the governor to sign off. This cumbersome process is adding more levels of government approval and unnecessarily slowing decisions. Let’s change the law to make it a local approval only (since it involves local taxes only) and streamline the process and who is involved. Then get on with business so all know the rules and how it works.