With over two dozen proposals that do any or all of cutting of
eliminating the corporate franchise tax, the corporate income tax, or the
individual income tax, and raising the tobacco tax and the sales tax and/or
extending its reach, and reducing tax exceptions, plus one renegade proposal to
institute a statewide property tax dedicated to funding higher education, this
menu demands sorting by best principles as revealed by research into economic
behavior. And they are:
- Broader, the better. Not only in an economic sense is this good, because it’s efficient, but in a political sense because as some people may end up paying more or who otherwise might escape it altogether, it gives greater incentive for them to get involved in governing themselves. You’re more likely to invest more time in evaluating the spending decisions made by government the more of your own resources are at risk.
- Flatter, the better. The same principle applies here economically, as it means government does not take disproportionately resources from those who do the best job of investing those resources to contribute to society as a whole.
- Simpler, the better. Reduction of exceptions and administrative superstructures to account for them makes investment decisions in the state easier to evaluate, reduces the cost of government, and discourages skewing of private sector decision-making in directions that are less likely to encourage overall economic growth in favor of fueling a special interest.
- Least punitive, the better. Taxation that is nothing more than a money grab without a behavioral and financial purpose of expanding wealth for all defeats these purposes and makes for less coherent fiscal policy. Examples of shortcomings in part of current law are tobacco taxes merely for the sake of raising revenue that have no real relationship to the activity of smoking, the corporate franchise tax that is complicated in compliance and a deterrent to capital investing, and the corporate income tax, which reduces incentives to incorporate in order to find preferential tax treatments, raises the possibility of double taxation on dividends, interest, and capital gains, and is the least predictable of all forms of revenue outside of mineral excise taxes.
- Revenue collection related to needs. A systems needs not to emulate the current paradigm where revenues available drives the roster of needs desired, but instead should do the reverse, where needs are identified and then revenues established to match. This likely means that some, perhaps all over time of individual income taxes can be reduced as revenue sources more logically get linked to needs and only genuine needs are funded.
Reviewing the pertinent numbers, the latest
Revenue Estimating Conference numbers on which the budget is to be built
accepted the forecast of $340 million in corporate income and franchise taxes,
down $34 million from the actual fiscal year 2012 collections, individual
income taxes of $2.6572 billion, up $189.1 million, sales taxes of $2.7108
billion, up $130.2 million, and tobacco taxes of $133.2 million, down $2.5
million; and the most
recent tax exemption data showed roughly a third of potential individual
income (worth $3.777 billion), sales ($3.874 billion), and severance taxes ($527
million) were exempted, altogether totaling over $8 billion forgone or an
amount about as great as general fund revenues actually collected.
Keeping in mind those principles, the top priority would be to get rid
of nearly immediately in entirety is the franchise tax and corporate income tax,
at a current revenue cost of $340 million. Next, almost immediate imposition of
a flat tax at the lowest rate of two percent on individual income, using the
latest numbers and collection
figures, would cost $928 million. Note also this would obviate all
corporate income tax exceptions and make those geared to individuals less
valuable to pursue. These would achieve the objectives of broader, flatter,
simpler, and less punitive.
This creates a fiscal year 2014 “hole” of $1.268 billion. But to reduce
confusion, it should kick in halfway through, to align with the federal tax
year. While this delays the cuts six months, it does make things simpler. In
essence, the hole for this upcoming fiscal year gets reduced to $634 million.
To begin to address this, the tobacco tax could be about tripled
immediately without delay, although this will not bring in three times the
revenue because of the dynamics involved, and dedicate this to unfunded accrued
liability reduction in the state’s pension funds with a sunset in 2029. Let’s
assume it about doubles revenue take, to $267 million, which otherwise is
removed from the budget to pay down the UAL. With part of that now dedicated,
it releases that much to make the immediate hit fall to $367 million, and makes
it a less punitive, more constructive kind of tax that can get the two-thirds
vote required for passage.
Then, as Jindal had proposed with the assent of the industry counting
on the end of income taxation, the severance tax exemption can be halved now,
producing $263 million more. It’s also a politically possible tactic to get the
two-thirds vote needed, for what liberal Democrat could be against hiking taxes
against oil companies?
Now for the upcoming fiscal year the gap is only $104 million. The political
consensuses in supporting both the wasteful motion
picture investor and solar
tax credits seems to be crumbling to the point two-thirds majorities can excise
these. While they will waste an estimated $180 million and $13 million,
respectively, in forgone state collections under present rules, these figures
must be adjusted in the case of the film credit by the typical 75 cents on the
dollar they are traded for. Dump these two immediately, and the state is now
$44 million to the good for FY 2014.
Of course, next fiscal year (2015) the entire $1.268 billion “cost”
comes online and the tax shield value of eliminating the two credits gets
reduced (because of a lower rate paid; most claiming these credits now pay that
the highest rates that will be reduced by four percent). Assuming that’s now
only worth $59 million, the freed revenue total for FY 2015 becomes $679
million.
But it’s here where the last principle comes into play, in a
legislative year (2014) where tax matters can’t be dealt with in a regular
session, through policy choices matching revenues to genuine need. There are several
changes out there that can shave this total considerably, such as again
waiving civil service employee salary increases and mandating they pay a
greater proportion into their gravy train retirement plans that would bring their
compensation more in line with that of nongovernment workers, reform of the
Taylor Opportunity Program for Scholars to cap its maximum award, and quit
paying nursing homes for empty beds. Together, these would bring roughly the
gap to $325 million.
Keep in mind the extra economic activity produced by reform will eat
away at that figure a little and increasingly so as the years go by. Costs also
may continue to go up, but not likely as quickly as the additional revenues
from a more efficient tax system designed to spur better economic growth.
Assuming it’s the same figure, a funds sweep can take care of the rest –
leading to the 2015 session where more tax reform can be accomplished by taking
dedications that overfund that then requires funds sweeps and altering them to
get more money into the general fund and away from low-priority purposes, and
perhaps the investigation of a statewide property tax. Waiting for the next
governor and Legislature to take office, then the biggest leap of all can be investigated
– the end of the individual income tax.
(Alternatively, this year also could have reviewed the idea broached by
state Rep. Chris
Broadwater in HB
576 of levying a state property tax of 5 of the permitted 5.75 mills to pay
for higher education, without that displacing other funds. But to reduce the
$325 million the bill by as much as $195
million as written could not be dedicated and must be the full amount
permitted constitutionally, and the political environment may not be adequately
favoring this tax increase to garner a two-thirds majority, even if deferred
until 2015.)
So how does the present passel of bills fit into all of this? Start
with state Rep. Kirk
Talbot’s HB
586, which does the flat tax delayed six months but sets the rate at 1.9
percent; amend it to 2 percent. Also take his HB
178, which has a delay of six months, which eliminates the corporate taxes.
These require simple majorities to pass.
Next, take HB
574 by state Rep. Joel Robideaux, which
increases tobacco taxes across the board, and amend it to dedicate it to paying
down the UAL. Also take his HB
616 which addresses the severance tax and should reduce its exemption by
around half. Finally, take state Rep. Roy Burell’s HB
444 and amend the two sections that sunset the film and solar tax credits
sometime in 2015 and make them immediate (the bill also includes other proposed
eliminations, some of which would be mooted by the ejecting corporate taxation
and therefore should be amended out, but puts sunset dates on others, which
could be retained). All of these would require two-thirds majorities to pass.
And there it is – five bills with only three receiving minor
amendments. The numbers show it actually brings in more revenue the first year,
followed by manageable gaps that over time should disappear given the economic
growth it will spawn. Politically it’s possible because Republican majorities
exist to pass the cuts, and enough Democrats will join to make the two-thirds
majorities that push across the tobacco tax increase Democrats historically
have stumped for, the raising of taxes on Big Oil far in excess of those raised
on Big Solar, and elimination of the tax credit for film despised by the left.
3 comments:
All of you people in Shreveport (if there are any that read this blather), he advocates KILLING your growing, thriving entertain industry.
YOU NEED TO SPEAK OUT ABOUT THIS, if nothing else.
These people are sick, sick, sick, sick, sick, sick, sick ...
Jeff Sadow frequently advocates killing off everything the local film industry has worked so hard to build (and all the jobs that have come with it) in his barely literate polemics.
On the other hand, if the professor has ever been willing to help make the jerry-rigged Jindal tax proposals work by taking a hard look at government waste in places like, oh, let's say the LSU-Shreveport political science department, I sure haven't heard about it.
Just ask yourself this, as you watch Jeff Sadow go to such remarkable lengths to defend everything Bobby Jindal does and DOESN'T do, in this space and in the comments sections of every online news outlet in the state: if, just IF, the professor WERE being paid off by the Jindal administration to act as an unofficial press agent, what would he be saying or doing any differently?
I would suggest that we downgrade the obviously, grossly overpaid and biased staff at LSU-Shreveport.
Failing last year to move them to the oversight of LA. TECH, as the more grown-up people in the city supported, was a big mistake.
This apologist, who continuously demonizes state employees for his own political purposes, should be seen for what he is.
I am grateful that my kids are not paying money to be brain-washed by him.
Talk about a waste of public money!!!!!!
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