In this meeting, Secretary of
Economic Development Stephen Moret gave a summary of encouraging economic
statistics, principally the 4.9 percent latest (January, 2014) unemployment
statistic, which places Louisiana tied for 11th lowest among the
states and District of Columbia. This led to questioning, principally by
committee chairman state Rep. Jim Fannin, that
improving numbers did not seem to be reflected in state revenues. Compared to
last year’s budget baseline, they have improved incrementally and do
not seem poised to do any better for next year.
Particularly Fannin queried about
the causes of improvement on indicators translating poorly into revenues, and
he and Moret batted around some ideas, which Moret emphasizing that a sputtering
economy under the stewardship of Pres. Barack Obama
would keep a lid on state revenue growth. In the end, Fannin seemed most
concerned over the role that tax exemptions of all kinds played in turning away
potential revenues from the state, which Moret acknowledged was increasing in
size at a fast rate.
And upon investigation, using
comparative statistics to filter out the impact of generally poor national
economic performance, the point is valid. Using fiscal year 2008, which began
only a few months after Gov. Bobby
Jindal took office and a couple of months before a noticeable downturn in
national economic activity commenced, as a baseline, then the average annual unemployment
rate in the state ran at 4.4
percent, and this was at the peak of the post-hurricane disaster artificial
economy. Just over six years later, while the rate has gone up, the state’s
relative ranking actually improved slightly, for then it was tied for 13th
lowest. Thus, not much change has occurred, although, again, larger improvement
than indicated probably occurred because of the wearing off of the artificial
economy.
Again, in comparative perspective,
in a related measure Louisiana shows even more improvement. The labor force participation rate
in the state for the beginning of 2008 was 59.0 percent, which ranked tied for
45th highest, but exactly six years later while subsiding to 56.3
percent improved among the states to being tied at 39th highest as under
the Obama Administration the national rate is lowest in over 35 years.
Including income and output also
shows some minor relative improvement in Louisiana’s economy from 2008 to 2012.
Annual
average per capita income as a
proportion of the U.S. average pretty much tread water, going from 92.48
percent and ranked 31st best to 91.59 percent and tied for 32nd,
but its per capita real gross domestic product
relative to the states’ average went from 96.93 to 100.84 percent. These
numbers together also indicate incremental improvement.
So as far as assessing whether
there has been an uptick in the potential for state revenue, a necessary
condition in the first place for there to complain about bucks not showing up,
the data show on the whole there has been – not a dramatic upturn, but some.
Yet income tax collections have fallen in the 2008-13
period. Corporate income tax take (including franchise tax) has fallen from $995
million to $384 million, and for individual income taxes the decline has gone
from $3.242 billion to $2.721 billion.
But when including tax
exemptions, overall potential tax receipts in the state actually increased
substantially in this period. For corporate taxes, exempted dollars went from
$962 million to $1.685 billion and for individuals $812 million to $2.069
billion. Overall, that means total potential income taxes that could have been
collected in 2008 were $6.011 billion and in 2013 they would have been $6.859
billion, or an increase of 14 percent over this period as opposed to a decrease
of 27 percent actually collected.
Of course, one significant tax
change policy during this period were the 2009
and beyond individual income tax cuts, which in the short run would reduce
take from this source before the long run economic expansion these would induce
would kick in. And, while tax exceptions typically are inefficient mechanisms
by which to trigger similar economic growth that turns up as increased state
tax revenues, they do induce it to some degree, so had they been wiped out
completely this extra money extracted from those who earn it probably would
have dampened the actual potential total; in other words, it’s not as simple as
just taking actual take plus forgone exempted amounts to come up with what
actually would have been collected without exemptions.
Yet with these caveats, it’s clear that a large
increase in exemption totals has been the major explanation as to state revenue
haul lagging economic growth. It also repudiates the false
narrative often spread by those interests and ideologues who have faith in
big government who maintain a dip in and then the slow-growing revenue picture
developed because tax cuts took a chunk out of revenues. In these two metrics
most attuned to income tax policy, collected and uncollected revenue growth combined
has occurred at an average of over two percent a year with the tax cut,
comparable to economic growth of the country as whole (which suffered an income
tax increase in the last year).
However, Fannin’s response
provided the most illuminating portion of the exchange, when implying that he
wanted to take a look a tax breaks more broadly. If so, that would mean the
third time is the charm: in 2012, a special legislative panel called the Revenue Study Commission presented a
comprehensive review of the matter, including the role of tax exemptions, and
in 2013 a slew
of bills to begin to or to end tax exceptions hit the Legislature, only to
have just one getting into law, that put back into state coffers a few million
bucks by scaling back a sales tax break to vendors who paid these receipts
early.
Yet Fannin acted as if none of
these opportunities to address the patchwork quilted system of breaks, strung
out there with no rhyme or reason as to why they exist or whether if they did
not that state government really needed those forgone funds as opposed to
alternative uses by keeping that money in the hands of those who earned it,
ever happened. Memory may be
unreliable, but surely Fannin (and every other legislator) must recall
these. Just how many dedicated studies and bills coming forward does it take
before legislators finally begin a serious policy debate that produces major
structural changes to state tax policy?
Legislators who moan about lack
of revenue and who decry the impact of tax exemptions on revenues have had
every opportunity recently to do something about it. But they have lacked the
political courage to do so, fearful that those benefitting by a particular tax
break will attempt electoral retaliation, and so hope the general electorate
forgets about the issue. With a prohibition during this legislative session on
altering any exceptions to bring in more revenue, 2015, even if an election year,
brings the chance finally to make real progress in this area, if lawmakers have
the guts to do it. Endless musing about this only serves as a distraction from
this reality.
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