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Jindal correct to reject mistaken tax hike emulation

Perhaps the way to summarize the effect of the separate problems Louisiana faces in creating economic growth is it has an outmigration problem – more people leave the state and enter, and it’s getting to the point that the excess of births over deaths won’t be able to compensate. But maybe the state will get lucky because fiscal policy of many other states may give Louisiana a boost, if Gov. Bobby Jindal sticks to his guns.

Jindal has said he will not consider any tax increases of any kind to work the state’s way through an impending budget crisis, preferring smarter use of funds and cutting functions. However, some other states are raising taxes, mostly on consumption of certain good deemed to impart something deleterious, hence the name “sin taxes.”

There is some stupidity out there on this issue that actually argues personal income or consumption taxes on the wealthy should be raised, the rationale being that the really rich have so much money they’ll never miss it and it might actually be good for them to have a more “realistic” understanding of a good’s true value. This is not the space to analyze the intellectual confusion of this view (an excellent job is done here) but it suffices to say that the historical empirical evidence exactly contradicts this view, as cuts in tax rates particularly among the wealthiest bring the strongest economic growth because their resources get deployed in the most efficient fashion through investment, as opposed to government spending it in a much more inefficient manner for purposes that fail to contribute to society.

Republican Jindal seems to understand the obvious, that if a choice has to be made, it’s a pretty safe bet that there are low-priority, essentially unneeded things being done in government that can be excised rather than government sucking a greater proportion of society’s resources out of the economy into its own maw which, in the long run, will only serve to depress the economy even further. That other states (notably, almost exclusively those with Democrat majorities in their state governments) that don’t have the wisdom to understand this simple truism are willing to do the opposite are going to hand Louisiana a competitive advantage over the next few years.

As Jindal’s Secretary of Economic Development Stephen Moret has noted, Louisiana suffers from having low growth in economic areas where it could have a competitive advantage. Yet the solution is not, as he intimates, some kind of government policy targeting assistance to these sectors because that reflects the same folly of belief that government somehow knows better than the market where to commit resources. Instead, it is policy that reduces generally tax and regulatory burdens, a direction into which Jindal has made small steps and perhaps, at least on the regulation-reduction side, will make more soon.

Tax reduction may be suspended for a short while given other reformist goals of Jindal’s such as in health care and from receding economic tides, but a relative reduction may come if other states and the federal government make the mistake of raising taxes. This will make Louisiana more attractive precisely to those groups Moret frets about being in short supply in the state going forward, the younger and more educated/motivated. Jindal is smart to continue resisting the ignorant suggestion of the chattering classes to follow the course of these other states.

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