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The Same Old Game Plan


April 4, 2017

It’s time to face the truth we have long avoided: Louisiana cannot tax, spend and mandate its way to prosperity.
 
For decades, one politician after another has tried every idea under the sun to make the Baton Rouge-heavy, something-for-everyone Huey Long model effective at solving problems and protecting taxpayers. It just won’t work. It’s a square peg in a round hole. Sending our hard-earned tax dollars to the state capitol each year in the hopes it will lead to good schools, dependable roads and a stable economy has proven to be a bankrupt game plan that must be replaced.
 
Texas doesn’t do that. Taxpayer dollars stay closer to the people, counties are tasked with taking a leadership role and the state capitol of Austin is there to assist when needed rather than play kingmaker to the state and its people. Florida is a similar model. Tennessee and Georgia, too. Basically, every southern state that has economically grown since the tough times of the 1980’s operates differently than we do in Louisiana. We are still trying to put lipstick on the pig created by Huey and enshrined in the Constitution by Edwin.
 
The latest edition of the lipstick is the 2017 version of let’s blame business and the working class for government’s perennial problems.
 
Last week, Governor John Bel Edwards rolled out proposals for changes to Louisiana’s tax code. To raise close to $1 billion in new tax revenue, the Governor seeks to impose a new Commercial Activity Tax, which is just that – a tax on all commerce in Louisiana. Also known as a Gross Receipts Tax, it is nearly universally panned as bad for the economy and bad for consumers by national experts on both the left and the right. Only five states levy it, and four states have repealed it in recent years due to the pyramided costs, disincentives to entrepreneurship, and disproportionate harm to in-state small and medium-size companies.
 
This state has lost 25,000 jobs since the recent peak of the economy in 2014. Employers and families are struggling to stay afloat, but have already paid $1.3 billion more in taxes this year than last year. Does a new $1 billion tax on the economy sound like the right thing to do?
 
Before asking for even more revenue taxpayers deserve an explanation for how the additional $1.3 billion in state revenue is being spent this year when priorities like TOPS remain unfunded.
 
Instead, in his press conference to justify this new tax, the Governor openly stated it’s time for the state’s employers to pay “their fair share.” Well, let’s look at the facts.
 
Employers in Louisiana pay most property taxes in this state. Employers pay both individual and corporate income tax. Employers pay half of all sales taxes in the state – at the highest rate in the nation. Employers pay a franchise tax and an inventory tax in Louisiana, which most states don’t even have. Employers pay excise taxes like severance tax and gas tax. To allege that businesses aren’t paying their “fair share” is patently false.
 
Furthermore, the talking point the Governor used to justify this statement is severely flawed. While he reports that 129,000 of 149,000 corporations didn’t pay taxes to the state at all (obviously untrue given the examples above), he also failed to note that 48,000 of these companies actually file on their individual income tax returns. He also did not account for insurance companies, non-profits, and other entities that may be legally defined as corporations but are taxed in other ways than the corporate income tax.
 
And corporate tax exemptions aren’t the problem behind the deficit either. New Louisiana Department of Revenue data shows the inventory tax credit is down 60% from 2015 to 2016, now totaling just $226 million from a peak of $570 million. The Net Operating Loss deduction is down 65%, and the exemption for business utilities has dropped by 59%. In fact, the largest corporate “exemption” is not even an exemption at all, rather it is simply a prohibition on double taxation.
 
What is behind the deficit? Rapid growth in spending by the state and not enough jobs in the private sector.
 
The budget as proposed is $4 billion larger than it was last year. State economists have repeatedly cited Louisiana’s poor economic performance as the driving factor behind the state’s deficit. States like Texas, Florida, Georgia and Tennessee spend much less per capita than we do and yet they have stronger economies. Oh, by the way, they have consistently better schools and roads, too.
 
The Governor and Legislature should look outside the Capitol and Governor’s Mansion to see what is really going on across this state and react accordingly. For starters, they should look back to the HCR11 Task Force. The inventory tax and credit were both recommended for repeal, a move which is nationally recognized as good policy and one that could spur investment and growth. The Task Force suggested budget reforms, as well, such as the repeal of statutory dedications, which were also absent from the Governor’s proposal.
 
While there may be some peripheral elements of fiscal reform in this plan that were cherry-picked from the HCR11 Task Force, the core of the Governor’s proposal is to raise at least $1 billion in new taxes on employers of all sizes, while they are fighting for survival in a statewide recession.
 
Without question, this latest approach will lead us right back to where we started…a down economy, increased spending, a prolonged deficit and just another version of the oft-used political play from the 90-year-old Huey Long playbook.