Echoing many of the concerns noted recently
here, the article points out that several large breaks (although it missed the
fact that in its gigging of the solar system tax credit that this goes away at
the end of 2017) have grown dramatically in recent years – an important point because
while from 2009 to 2013 the proportion of the total state-generated tax
revenues that the total amount of all tax breaks represented varied only between
47.8 percent and 52.8 percent, this was only 0.4 percent higher in 2013 than in
2009. This means that clipping just a very few, high-volume programs (which was
done to solar in 2013) could bring a significant reduction in revenues lost, so
long as the revenues gained from their existence did not exceed the amount paid
out.
And it’s unlikely that they do, for
while almost no benefit/cost studies currently are performed on these, for one
of the biggest it is legally required every other year – the motion picture
investor tax credit, which only makes a dollar back
in tax revenues for every seven forgone (the article claims one in four,
although that may include local tax revenues as well but, if so, errs in not accounting
for local film tax credits that some jurisdictions give out as a total cost in
tax revenues). The article tries to build the case for the others anecdotally
in noting that there didn’t seem to be changes in industry behavior due to the
credits, although sometimes that explaining clumsily; while natural gas
activity that could take advantage of the horizontal drilling credit obviously
fluctuates closely with the price of the resource, that doesn’t mean at the margins
more gas won’t be produced with the credit and in fact this probably is
amplified because the credit only is in play during the most productive portion
of a well’s life.
Also important to note, which the
article did not, is that some of the largest offenders that target smaller
groups with presumably wasteful returns to taxpayers are geared towards
individuals and go beyond just income taxes. Only one of the exceptions
mentioned in the article, the horizontal drilling credit, even makes the top
dozen in dollar terms, where far more revenues are foregone through such things
as the sales tax exemptions on unprepared foods and drugs or the federal income
tax deductions for both individuals and corporations.
Thus, a policy consensus that seeks
to lop off the unproductive exceptions also must include those outside the
realm of corporations. Without perhaps realizing that, the article did so in
its discussion of the solar credit, which is taken largely by individuals
whether as homeowners of landlords, and the film credit, where corporations may
initially garner the credits but most are sold to and get utilized by individuals.
Among those used exclusively by individuals that unlikely are efficient the
Earned Income Tax Credit stands out, an inferior
instrument as compared to the negative income tax due to the ability of
employers to pass it on in terms of reduced wages and the fraud
involved with it. Alone without other welfare transfer payments its
benefits may exceed its costs, but with a generous welfare system in America it
becomes counterproductive at the national level, and worse with Louisiana adding
on to the federal version.
So, while there is a good case to
pare a few of these, the article also does well to elaborate on the two major
obstacles that could prevent this – lawmaker desire not to get tagged as
raising taxes and while the costs are dispersed to the public the benefits are
concentrated among a few, giving the latter tremendous incentive to lobby for
exceptions’ retentions contrasted to the relative apathy of the former. That
2015 elections loom with reelections in mind (or, in the case of term-limited
Gov. Bobby Jindal and some legislators, perhaps looking ahead to other
electoral challenges) only intensifies these impediments to ditching any
exceptions in the short run, with policy-makers reluctant to allow themselves
to appear as willing to raise taxes on anybody.
Past next year, keeping in mind
that the next constitutional opportunity to pare these during a legislative
regular session is 2017, two strategies commend themselves to the task. The
first involves an assault against the biggest offenders where the best case can
get made for the wastefulness of these. However, the bigger they are, the more
vigorously they will get defended, and each would demand a separate (two-thirds)
majority to eliminate.
The other would moot the impact of
income tax breaks by getting rid of the income tax itself and shifting the tax
burden to other devices, a tax structure employed by a growing number of
states. In 2013 Jindal tried this, but failed because he made the effort too
complex for purposes of understandability that limited it persuasiveness in an
attempt to show it would not raise taxes on any single person below the middle
class, when in fact broadening the tax base by removing exemptions and adding
additional items to be taxed such as services would
have a noticeable positive impact, provided an overall revenue neutrality
or negativity is observed.
The outlines
of the plan actually would have achieved the goal of revenue neutrality,
but politically the Jindal Administration failed to sell it. Worse, in going
directly to surrender instead of using shelving of the plan as a tactical
retreat, the governor missed a chance to build on the momentum he had
established in making some marginal adjustments to the tax code that might
heavily had leaned on getting rid of counterproductive exceptions.
That experience does not mean not
pursuing next year something less grandiose along these lines, or at least a
new governor and Legislature doing so in 2017. Even a reduction in income tax
rates coupled with dispatching some breaks could move more towards efficiency. As
opposed to the piecemeal approach, this strategy has the advantage of being
able to offer to enough of the current beneficiaries the compensation of tax
relief in other areas in order to overcome resistance to the extent that more
comprehensive reform has a better chance of making it into law.
Wrapping everything together and
handling it all at once in one giant mother of all battles instead of piecemeal
conflicts probably has a greater chance of success. Gubernatorial and legislative
candidates who promise this should get serious consideration from voters.
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