All right, so relative to predicted recurring revenues and forecast costs for fiscal year 2016 Louisiana now has a $1.6 billion gap that could require hundreds of millions of dollars of cuts to health care and higher education from this year’s baseline. Leaving spending reductions aside for the moment, what on the revenue side could be done to close this?
A number of things could be tried,
but the problem is as most of them involve structural reform of Louisiana’s
fiscal system and spending proclivities, they deliver not much in the way of
short-term relief, with most of that coming further into the future. For
example, the motion picture investor tax credit likely would have little earned
in FY 2015 that also would get claimed on the tax returns of that span. And any
removal of these would require a two-thirds vote in the Legislature, which
seems unlikely for almost any of them, given politics, regardless of whether they
would have a major impact this upcoming fiscal year.
But the Legislature constitutionally is
empowered to suspend laws, by the same vote threshold as what it takes to enact
the law, which while to raise a tax is two-thirds, to pass an exception is just
a simple majority of the seated membership. Suspensions may last only 60 days
after the end of the next regular session, i.e. possibly through Jun. 30, 2016,
and do not face a gubernatorial veto. Thus, Gov. Bobby
Jindal, oft quoted indicating opposition to any non-neutral tax changes
that would have the effect of an overall tax increase, could be bypassed by
simple majorities to wipe out temporarily tax exceptions, a mark that seems
much more realistic by which to succeed.
So for this strategy to work,
exceptions of some significance for the immediate term would have to be
suspended, and several candidates suggest themselves. Most obvious is the
Earned Income Tax Credit that (as of the latest data)
removed $46 million from the treasury. The EITC, which pays people for working
a minimal amount, discourages working more and advancing in work capability
that outweighs the marginal impact of encouraging the getting of a job, and a
more generous federal version already exists.
Lifting the exemption on sales tax
to local governments would lift another counterproductive exception. The state
enjoys this benefit as well, although it could be argued that if not it would
be paying itself anyway. But local governments get this, too, and if they had
to pay it this might make them reconsider both whether their own sales tax
policies are excessive and whether they truly ought to be spending in certain
ways with the subsequent reduction in money they would retain. The entire
amount is $211 million; perhaps $50 million of that goes to local governments.
The tax-free income break to state
and teacher retirees and to federal pension retirees also deserve dismissal.
People in the private sector who have to pay on their pensions or distributions
from individual retirement accounts don’t get this advantage – this discrimination
multiplied by the fact that government retirees typically receive greater
total compensation than private sector workers performing the same tasks. The
majority of southern states do not offer this break and together they cost
Louisiana $106 million.
Just these four alone would bring
in over $200 million extra, with little negative impact to collections. The
EITC bonus people receive generates little in sales tax revenues because much
of their spending already is exempted through the state’s sales tax break on unprepared
food, prescription drugs, and utilities, local governments’ spending is an
inefficient way of boosting economic development, and pension monies typically
get used in a way to generate sales tax revenue, except a decent portion of the
typical spending of a retiree to whom a pension is the main or only source of income
(the minority of all such recipients) is on items that qualify for the
food/drugs/utilities exemption.
One area that should not be
suspended is the exemptions for income taxes. It’s unfair to tax people on
income already taken as taxes by another level of government (most of this
being federal income taxes, but some by other states). However, the full “excess”
item deductibility of federal taxes allowed also as a deduction on state taxes
should be investigated and tweaked so that only deductions for those things
which potentially enhance state revenues get such treatment.
Also, policy-makers would act
unwisely by treating suspensions as an end unto themselves addressing a
short-term event. Choosing which ones to jettison temporarily ought to relate
to a larger strategy of permanent parings, which if undertaken in the past
would not now have led to these difficulties. And they should include a review
of dedications to match actual need attached to the dedication is as great as
the funds normally expected to flow that way; if not or the need is not one
that government crucially should address, the dedication requires loosening if
not elimination. Finally, they additionally should include rigorous review of
spending and merge in cuts to these with changes made to the revenue side of
the ledger. Actually, none of this is new: various legislative panels have
looked into these options and continue to do so.
No, given the lackluster economic environment
encouraged by the Pres. Barack Obama
Administration for the past six years, Louisiana did not prepare itself well
for bad fortune that unluckily befell it with a steep decline in oil prices
(ironically despite Obama Administration efforts to the contrary, and with
Louisiana playing a significant role in its production causing the glut). But
now with things as they are, the Obama Administration aphorism about not
letting a crisis go to waste should jumpstart fiscal reform efforts. That can
begin with temporary suspensions targeted to unproductive uses that when
enacted bring immediate relief as part of a larger, longer-term campaign.
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