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The Deficit That Won’t Die

June 27, 2016

By: Stephen Waguespack

No matter what they seem to do in Baton Rouge, the deficit in the budget of state government won’t go away.

A legislative session was dedicated to raising taxes in 2015. In that session, new taxes on employers dominated the agenda. Increased taxes for business inventory, energy costs, research, and operating losses were imposed. Despite this new revenue, the deficit remained.

A second session focused on new taxes was held in February of this year. Massive sales tax increases for business and individuals were raised in that session. Energy taxes were increased on employers yet again, along with new taxes on machinery and equipment, operating losses, and the vendor compensation program. The state’s franchise tax was extended to smaller businesses (ignoring the advice of economists who recommend repealing it altogether) and the repeal of federal income tax deductibility was placed on the fall ballot for companies (though it remains for individuals). Tobacco and alcohol taxes were increased. When it was all said and done, that session raised over $4 billion in new taxes to be collected over the next five years. All the while, the deficit still remained.

This month, the Legislature returned for its third session dedicated to new taxes in the last year. They raised roughly $260 million in new taxes, primarily from a new HMO license tax, new limitations on industrial inventory tax credits and the repeal of interest owed to businesses when the state holds onto taxpayers refunds for too long. Over the next few months, we will likely learn more about what was in those bills and what fiscal impact they actually will have on Louisianans. Regardless of that final analysis, the deficit will still remain.

The state budget that just passed is over $2 billion larger than last year’s budget. Even if you don’t count the massive increased reliance on federal money in this year’s budget, there are still more state dollars to spend this year compared to last year’s budget. All the while, the deficit remains.

Most reforms to modernize the overly complex and limited structure of Louisiana’s budget have been watered down or killed. Statutory dedications that restrict the state’s ability to invest in key priorities have not been reformed. Neither have the pension programs that become more uncompetitive and expensive by the year. The subsidies to local government that flow throughout our state budget have not been right-sized, and in fact, they have increased. The funding for the Department of Health and Hospitals is over 25 percent higher than last year. All the while, the deficit remains.

New taxes are passed time and time again, yet the deficit never goes away. How can that be? Whether we like it or not, we just can’t afford the size of government many of our elected officials want unless they are also willing to reform it. The size and scope of our government spending is larger than Louisiana’s economy can sustain…and it has been that way for years.

Fact: Our economy is shrinking while our state budget is growing.

At the beginning of the year, the state had lost roughly 12,000 jobs over the previous year. A few months ago, the number was closer to 15,000 lost jobs over the previous 12 months. As of this week, the number is 19,600 Louisiana people that have lost their job in the last year. And the trend is getting worse. Seven of eleven economic sectors are losing ground in Louisiana, with manufacturing down 8,100 jobs and the oil and gas sector alone dropping 18 percent.

Louisiana’s jobs deficit is growing yet our government deficits never seem to shrink. We must start funding a reformed government that is proportional to our economy rather than over-taxing our economy to fund an unreformed government that we just cannot afford.

The Legislature has now gone home and the sessions have finally ended. 

When they next return (whether in a third special session this fall or a regularly scheduled fiscal session next spring), our leaders must embrace a different approach to solving our recurring problem. You can’t kill a government deficit with a tax-heavy approach that ignores or dismisses the fiscal realities outside the Capitol building. 

Reduce government spending. Reform the structure of the state’s budget. Make our tax code simple, flat and fair to all. That is the plan to finally kill that government deficit AND help reverse the trend on our jobs deficit – a plan that has yet to be embraced by the politicians in Baton Rouge.