Compelling LA tax swap case at risk from demagoguery

It would be a major blunder by the Gov. Bobby Jindal Administration to let its tax swap plan falter because it allowed empty demagoguery to triumph over intellectually superior, economically beneficial, and individually empowering ideas.

Too often forgotten by conservatives, at least among those who aren’t populists, is that the increased intellectual demands underpinning their philosophy make cognitive demands on many unfamiliar with its study that causes what appears obvious to its articulators not to be understood fully by those receivers. (Conservatives of the populist kind, like liberals in general, base their belief more on emotion and faith with the consequent reduced ability to explain intellectually why they accept it as the superior understanding of why the world works as it does.) And it’s the practicality of translating abstract ideas into information for mass consumption that may make or break the plan.

In essence, the plan eliminates all state income taxes in favor of an increased sales tax on more items, provides income support for individuals making $20,000 or less in earning or those drawing retirement pay at $60,000 or less, eliminates some exceptions to the tax code while retaining those designed to shield basic necessities from sales taxes, and raises taxes dramatically on tobacco consumption. The state calculates the net impact to be a small gain to the lowest-income earners with higher gains for highest-income earners, while business may end up paying more but will be advantaged by lower administrative costs and an increased amount of revenue with more money in the mass public freed up to be spent.

Naturally, this disturbs the political left because it discourages consumption and provides more incentive for investment. As the left depends upon a kind of voluntary servitude among its electoral supporters, adhering to the faith that government is needed to redress the presumed lottery-like results of free enterprise and that any inferior positions they may find themselves in that system has nothing to do with the quality of their own choices and talents, the attractiveness of consumption as a palliative is a key component to maintaining this fealty. By holding out encouragement of getting stuff as temptation away from aspirations of self-improvement through their own efforts that would require savings and investment, it better enables liberals to keep them under its control by instilling dependency on government into them.

So to win this battle, the conservatives in the Jindal Administration must make sure they understand it will be won by distilling complex ideas into rhetoric that is simpler, but not oversimplified as is witnessed on the left, and act accordingly – also understanding that their efforts will be resisted by the mainstream media which sympathizes with the left on this issue. Thus, it is not helpful in this regard when point man on the plan Department of Revenue Executive Counsel Tim Barfield makes remarks like “It's very clear that business will be taking more of this burden” and “This is not an attempt to do tax reform on the back of the poor,” because this insufficiently counteracts the false narrative of the left, which is the effort is an attack on the “poor,” nor does this reassure that Louisiana-based business is not inconvenienced.

Thus, communications about this must disregard the framing the left tries to provide and instead provides facts as they are, for the truth will make you free. As such, on the plan (given it still has not been completely revealed in all of its details) the political right needs to make sure the following facts are presented often, over the kicking and screaming objections of the left and any media sycophants allied with it:

The plan is true tax reform, not a “tax shift.” Every household, because of the different earning and consumption decisions it makes, will come out differently in net resource change as a result of the plan’s implementation. But on the whole, Department of Revenue analysis shows the typical lowest-income household will be better off by it on a net basis, because of the retention of things like the state’s Earned Income Tax Credit, sales tax exemption on unprepared food, medicines, and utilities, and because of a new rebate. Saving accrue in all brackets, the analysis shows. So for those who claim otherwise, that the typical lower- or even middle-income individual will pay more in net terms should be branded for what they are – ignorant or liars.

The key to this improvement to the lot of the poorer is the generosity of the rebate, which at the reported figure of $300 at the $20,000 income level means it is assumed that 80 percent of that amount is spent on consumption of currently covered items – meaning just 20 percent is spent on currently exempt items such as unprepared food, medicines, and utilities. Because of that overgenerous assumption concerning real-world behavior, it disproportionately favors the poor compared to the current system. While the figures for retirees have yet to be revealed, that also may be the case for them. If so, the Administration needs to trumpet those facts to audiences of the poor and retirees, even though this preferential treatment might upset a bit those who are neither.

Finally, do not allow opponents to dictate the rhetoric. Every time they and the media spout the line that this is a sales tax “hike of 47 percent,” respond with it is a 100 percent decrease in income taxes with additional rebates for the poor and retirees.

Do not apologize for helping those few who pull the wagon filled with the many. While the plan for this reason might stoke a little envy from the non-poor, non-retirees, opponents will try to twist it the other way into full-blown class warfare by pointing out the absolutely larger income tax breaks that higher-income households will enjoy. The response needs to be, so what? Why should some getting a break be envious of others that are getting in absolute terms a larger break when in relative terms (by including the rebate, etc.) there’s little difference – and where’s the fairness in (using the latest data) that households $20,000 and under in income that represent 40 percent of all returns are paying just 7.2 percent of all state income taxes while those making over $60,000, or 24 percent of all returns, are paying 76.1 percent of all state income taxes?

As part of this, remind those who are retired that do not depend significantly on government transfer payments – that is, not those who banked much of their retirement on Social Security or a state or local government pension – that they can save an awful lot a year under the plan. For someone making $100,000 a year off of retirement investments not connected to government, an extra $6,000 a year is quite an inducement not to move to Texas, Tennessee, of Florida and take it all with them. And remind those that do get a significant chunk of their retirement earnings from government that this will remain exempt (as it is currently to varying degrees) as well through a rebate program.

Finally, point out to those of higher incomes with higher deductible items on the federal income taxes that even if they will be unable to claim deductibility for state income tax, they still have the option to do so for sales taxes they pay – which theoretically would be higher and thereby provide useful deductibility. And that, just like with the poorer, wealthier households typically will experience a net resource gain.

Reassure existing Louisiana businesses that this genuine tax reform will enhance their prospects. The analysis forecasts a net cost to businesses under the proposal. While their incomes no longer will be taxed, as about 83 percent pay no income taxes and those with incomes of more than $1 million annually or less than 1 percent of the total pay 89.6 percent of all corporate state income taxes, many may not see a benefit from this, as their business will be reduced by having to pass on to their customers higher sales taxes that will discourage consumption of their goods or services, and that some of their services not taxed by the state that would be will have done to them the same.

However, this presents a somewhat-misleading picture of small business in the state. Many owners have their operations treated as individual income, despite the higher potential rates they may pay, so they will see tax relief with the abolishment of all income taxation. This should be emphasized by proponents, as well as that compliance costs will go down without the necessity of filing on behalf of the business and for their employees’ state income. It may still be that business as a whole pays more, but for owners and shareholders who comprise those businesses, the less they pay in aggregate on their own accounts will more than offset that increased cost.

And that it will enhance everyone else’s prospects as well, including state and local governments’. The reason why this is true tax reform is because it creates a more efficient economic system. As academic research consistently has shown, systems light on investment taxes (such as on income) and heavier on consumption taxes (such as on sales) do the best job of generating wealth at all levels of societal wealth. The plan is built on the demonstrated dynamism of the real-life economy, often disparaged by the constipated static analysis of the left that disbelieves that humans behave as free beings according to self-interest guided by incentives and disincentives, and thus will cause economic growth benefitting all – more jobs at higher wages with higher investment incomes.

Included in the benefits of economic exapnsion will be Louisiana state government and local governments. They will have a more robust tax base and find themselves required to pay less for performing fewer social and welfare-related services. And in the case of state government, it will have a procedurally easier time of doing business as revenue flows become more predictable, for income taxation, especially with progressivity,  is the most notoriously difficult to predict and most prone to fluctuation. With that removed and the more stable base of sales taxation increased in prominence, forecasting for budgeting purposes should become better.

Yes, smokers will pay more and some industries (such as natural resources) will see higher excise taxes. But in the long run, there are many more net winners than losers under the plan as outlined to date and there will be disproportionately as many of these at lower income levels as at the higher end. Conservatives, and the Jindal Administration, cannot assume this general statement and the specific proofs of it above will receive any hearing, much less a fair one, among the public unless they explain it and explain it often in these terms. To do anything less invites the distortion of rhetoric to defeat a plan that empowers people.