House tax cut version Trojan Horse for tax increases

So, you’re a political conservative who thinks government spends too much and absconds with more of what people earn than it should. Now what do you do when asked to choose between the dueling versions of state Sen. Rob Marionneaux’s SB 259? Both eliminate individual income taxes over 10 years, but, from the perspective of a Louisiana conservative, which should you favor?

The version already approved by the Senate begins the process a year earlier in 2013. It also includes corporate income taxes. But it also makes it all contingent on the Legislature’s willingness to take a document produced by Jan. 6, 2012 by a panel, which may contain either or both or revenue enhancements through the elimination of tax exemptions and/or spending cuts/efficiencies in state government, and make it binding by passing a concurrent resolution that forces the state to undertake these strategies.

Only the House Ways and Means Committee has dealt with it yet, but its version dispenses with the cuts, does not include corporate income taxation, and starts a year later. The panel stays but its conclusions would have no bearing on a process that automatically occurs.

Proponents of the Senate approach say this will put a plan in place to prevent crisis budgeting in the wake of revenues that, in the short term, will be lower as this source of taxation disappears and could tempt tax increases.

Proponents of the current House version say this allows the Legislature to punt the cut away by the panel (mostly comprised of legislators) deliberately creating a plan too unpopular to succeed and/or getting cold feet on the required resolution. They argue the House plan needs just one majority vote to get it going with certainty. Considering these critiques as well as the dynamics involved, which approach has the best chance of enacting this cut and in a way that reduces the size of government?

That would be the Senate’s, and, actually, fairly obviously. While minor considerations, it does happen a year quicker and covers corporate taxation. And delaying it by a year in the House committee version is no accident. That’s because the Senate version is quite explicit in how the reductions are to be handled, allowing only a single type of revenue enhancement, removal of tax exemptions.

But even these are constricted next year because of Art. III Sec. 2 of the Constitution, as the session next year, being in an even-numbered year, does not allow for any actions that serve to reduce tax exemptions, but only those that would be revenue neutral or increases them. To some degree, any legislation that serves to set in motion income tax reductions also moots some exemptions, because they are exemptions from paying income taxes. Essentially, these are revenue-neutral and therefore can be addressed, even by proxy though starting the income tax cut machinery. However, changing tax exemptions to produce additional revenue cannot be done. Thus, no kind of tax increase, even through reduction of exemptions, can be part of the solution to start the tax cut during next year’s regular session.

But in the 2013 session, reduction of exemptions or outright tax increases, either new or existing, are not restricted. This signals as to what House version supporters want to have available on the table whereas Senate version supporters, by their language and timing, have forsworn that strategy. And since no automatic cuts are mandated in the House version, it’s a good bet that under that model legislators would be very tempted to reduce exemptions or even increase other kinds of taxes or create new ones (like the vampire-like oil processing tax favored by Marionneaux), even with the Art VII Sec. 2 supermajority requirement for their enactment.

The explicit nature of the Senate cuts also reinforces their tractability that increases confidence they would gain favorable approval of the Legislature. Essentially, they come from the Commission on Streamlining Government recommendations, particularly including many of the ones state Treasurer John Kennedy has beat the drum for over the past year. These are actions clearly identified as possible and realistic by the state. This further diminishes the likelihood of production of a politically ridiculous document outlining spending reductions that would encourage legislative rejection or legislative rejection of any plan at all.

Compounding that is 2011 being an election year. Passing the Senate version would create an instant campaign issue onto which conservative candidates can latch. They could promise to voters that they would vote to approve of these kinds of tactics to ensure the tax cut becomes reality. It’s a platform that candidates on both the left and right know will be appealing to many Louisiana voters, making even surer the spending and tax reductions will occur by election of candidates committed to make that happen.

In short, as previously noted, the only thing better than tax cuts are tax cuts and spending reductions – especially when tax cuts alone appear more consistently as a Democrat tactic to embarrass Republicans and/or increase government spending. Given the specificity of reduction instructions, the considerable discouragement of any tax increases of any kind, and the role fall elections will play, the tax-cuts-triggered-by-spending-reductions approach of the Senate is highly credible and likely to happen. By contrast, the House’s way of cocking a gun to the temple creates desperate people who will do desperate things, and the state’s political culture suggests those things, made possible by the timing, will include some form of tax increases.

Not getting cuts now according to specific goals and procedures puts legislators up against a Louisiana political culture that overemphasizes redistribution and state intervention in creating winners and losers. Too many Louisianans, especially when some legislators predictably try to whip up hysteria about imagined consequences of spending cuts, expect activist government to continue to give them stuff that will appear threatened by the cuts. With many Louisiana legislators not exactly profiles in courage, as recent events have shown, they may react to this pressure by falling back on their tendency to tax the guy behind the tree as a response rather than paring lower-priority or wasteful spending.

As such, the House version lends itself to turning into a Trojan Horse for an emphasis on revenue enhancement rather than with right-sizing government. Therefore, for the best chance at achieving less taxation and smaller government, conservatives should look upon that approach with suspicion and instead embrace the doable Senate version.