As is evolving, the plan envisions tax neutrality requiring striking a
short-term balance needing increases in other taxes. Discussed to accomplish
this are an increase in excise taxes, in sales taxes, and in the reach of sales
taxes, such as by adding some services subject to it and in making greater
efforts to collect it from more difficult channels to enforce such as Internet
sales. Even sketched in general terms, the swap’s
desirability is obvious.
Some have cautioned about a heavier reliance on sales and use taxation –
but outside of the proper context. One is Louisiana’s Public Affairs Research Council, which
quickly put together a group to provide a rough analysis of the general
information and produced a generally
valuable and helpful brief on the matter.
Note the implicit assumption made here – that the current level of
expenditures reflects government operations runs well and necessary or
essential for the public. In fact, the actual numbers cast much doubt on this
contention, as the state ranks 14th from the top among states overall
in total per capita expenditures (20th
from state general fund sources) yet in terms of overall per capita taxation ranks about 14th from the bottom
(when adding in local taxes, as Louisiana is relatively low-tax at the local
level, it falls to overall 43rd).
This skew suggests inefficiency and/or funding of activities not actually genuinely
needed on the basis of necessity or essentiality.
Thus, the PAR report fails to look at the entire equation – if you are
to advocate for an appropriately sized state government on which to base tax
revenue policy, first you must determine what that appropriate size is. And by
all indications, even after years of a small amount of aggregate reduction,
Louisiana government still is not right-sized. This failure then makes the
exercise of estimating the amount to offset much less useful without the proper
baseline, and leads to overcompensating. Further, the goal in mind should not
be to base these decisions on what is the potential fastest growing (in revenue
terms) single methods of taxation, as PAR suggests, but what is the best
combination of methods to encourage overall economic growth to improve all
lives as well as to increase government coffers.
PAR’s panel is not alone in its confusion – in a recent
column, commentator John Maginnis points out that the tax reform effort
will compete with dealing with a forecast budget deficit largely brought on by
higher spending yet never connects the two, as well as questioned whether the
swap would produce a stable revenue stream when in fact sales taxes are much
more stable that income taxes, which vary the most of all sources save certain
excise taxes. To date, Jindal Administration officials responsible for plan
specifics have avoided, for political reasons, perhaps the most salutary
measures that could go into it.
Politically speaking, they have wanted to reduce as much as possible
any additional burden the system may produce on lower-income residents, probably
in the hopes of increasing the chances of the two-thirds vote necessary to
raise some taxes in the Legislature and to avoid the constitutional amendment
route required to knock off sales tax exemptions. Yet in doing so, they
sacrifice an extremely beneficial aspect to all of this: redressing the
horrible imbalance that exists where a substantial segment of the population
pays next to nothing into a system that brings them great pecuniary benefits,
while the remainder of the population pays almost entirely for that system
where they receive few if any of those kinds of benefits. In short, society as
a whole suffers when a significant proportion of the population has no clue as
to the consequences of policy choices, and a revenue-gathering system that
deliberately insulates that segment from them as does Louisiana invites this
degradation.
In fact, if we correctly identify as the central public policy problem the truism
that Louisiana has a spending problem, then solving for that becomes much easier
when that segment of the population that pays little but benefits greatly from
that excess spending, either because it more appropriately contributes in the
aggregate to the financing of that activity or because as it pays more it
becomes more sensitized to the problem, less accepting of it, and more desirous
to change it, is asked to contribute more. This transformation produces greater
fairness and better policy outcomes, if right-sized and efficient government are
desired goals.
Naturally, political considerations to some degree play a role here given
the required supermajorities, concerned that if the tax burden on the poorer, despite
the vast state largesse expended upon them, rises too much objections to that
will scuttle the effort. Yet if that worries the architects of the plan,
perhaps they should reconsider the rejection of levying a state property tax to
what is the nation’s fourth-lowest collection as a percentage of total state
and local revenues and third-lowest as percentage of median home value in
exchange for what would become the nation’s highest sales tax rate.
The Constitution
allows a rate of up to 5.75 mills, and applying the present $75,000 homestead
exemption – that according to 2011
figures wipes out 42 percent of all homesteads right off the bat and
reduces costs for the remainder – it still would generate only $195 million a
year in revenues for the state. That would take some pressure off raising and/or
expanding sales taxes so much, put into play the most predictable of all
revenue streams, and cause no tax increase for poorer homeowners and marginal
if any increases passed along by landlords or businesses (as they would enjoy
income tax cuts to offset). Yet this option is being rejected even though it
would be no more difficult to enact than increases in sales taxes.
Perhaps it’s the fear that the extra burden would be felt almost
exclusively by the middle class and above, cooling their enthusiasm for the
change. The owner of a $100,000 homestead would see an increase of $143.75
yearly, and at double that of $718.75. Still, if the owner of the later has a family
income of $50,000, typical state income tax savings would be more than double
that level. And it would provide more justification for officials to claim the
swap doesn’t burden lower-income families by keeping the sale tax rate lowered or
expanded to fewer things.
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