Jindal presented a budget
as by the Constitution, but it met with criticism in certain areas, some portion
of it rightly so. The biggest of these were that it cut funding for higher education
$221
million and for health care $150 million even as rolling back tax credit
rebates were to bring in $526 million, although $377 million of that came in
the form of the inventory tax credit would cause in the aggregate businesses’
tax to rise by that amount, because the tax is levied at the local level which
the state could not change. To reduce the hit to higher education perhaps by
half, the Jindal Administration suggested a convoluted
plan to raise cigarette taxes, to increase college fees, then to pass through
the proceeds of the tax to offset the fee. Jindal has said he will veto any tax
increase that does not have an offset elsewhere. Also of some concern is that the
partner entities operating the state charity hospitals want additional funding
to continue providing services above and beyond their contractual obligations, estimated
at $142 million.
What is presented here uses the
executive budget as a baseline, as much of it presents a good framework. It then
reshapes it so some degree, taking bills already introduced and some data
associated with them, trying to address the valid concerns about workability and
desirability of the policy options attached to it. Just as the present budget
requires a slew of legal changes that eliminate the tax credit refunds, some
also will be needed under this plan.
And, what is presented here should
not be construed to deny the basic truth that the reason Louisiana got to this
budgetary crossroads is that is has a spending problem, not a revenue problem.
There are more than enough revenues out there to support right-sized
government, but neither are these revenues efficiently collected nor is
government as yet right-sized in Louisiana, as its above-average
per capita spending among the states
demonstrates. Continuing to operate a charity hospital system in a hybrid
fashion and having an overbuilt higher education sector are just two
impediments to giving taxpayers their money’s worth and delivering to clients
efficient service. The problem is the changes needed to correct for these even
if implemented now would save little money for the upcoming fiscal year.
Eliminate
the proposed tax credit refunds, except for that of the inventory tax. That’s because the
inventory tax should be eliminated, period, it being somewhat unproductive and
bizarre in application that makes state taxpayers subsidize decisions made by
local taxing authorities. This can be done most effectively through
constitutional amendment that strips local governments of the right, requiring
two-thirds approval in each legislative chamber followed by affirmative vote of
the people later this year. Thus, in effect it would be on the books for the
first half of the fiscal year.
As discontinuing the rebate in the
first part of the fiscal year/last part of the tax year (property taxes are
assessed on the latter basis and are due in the final month of the year; a
millage change even towards the end of the year counts for the entire year)
would constitute a big local tax increase on businesses, and there would be
uncertainty about the amendment’s passage, and local governments could lose for
a half a year these revenues, therefore the state should pay the refund though
2015. If the amendment passes, obviously it goes away. Then local governments
would have the better part of a year to decide how to respond, as well as state
government, which as part of that could choose to try offering an amendment to lower
the homestead exemption.
The cost for this, based upon the estimated
$458 million total for the credit of which $377 million is the refund portion,
would be $189 million if the amendment passes (going forward, the entire credit
would be saved in future fiscal years). Separate legislation could eliminate
the refund beginning in 2016 if the amendment fails, putting pressure on
business to cajole passage of the amendment. Of course, this means now such
money must be secured.
Raise
taxes on tobacco.
“Sin” taxation is not necessarily a bad idea, because the basic philosophy
behind its use should not be employing it as a revenue-raiser but as a
deterrent. By definition, whether it raises money should be of minor concern,
not just for this reason but also because it is a wasting revenue stream; i.e.
the better a deterrent, the less money it raises. As a result, it makes sense
only when tied to government costs incurred as a result of the activity being
discouraged. In the case of smoking in Louisiana, once source claims that costs
in Medicaid expenditures total $803
million annually. Thus, tobacco taxes in the state should be dedicated to
health care expenditures on conditions directly associated with tobacco use;
the higher the taxes go, the less revenue gets raised over time but the less is
spent on treating related maladies.
Using data from
one bill that would raise the only cigarette tax to $1.50 a pack, this estimates
it would raise $286 million, not even half of the estimated cost to the state. That
would free up a like amount of money for use elsewhere in the budget, which
could be used to pay the half year of inventory tax credit refund. Keep in
mind, however, that this is a windfall in every sense; medical
research has determined that health care costs related to smoking decrease
initially for a period of some years because of the discouragement of higher
taxation, but then overall these increase, because people are living longer,
healthier lives that make for more opportunity to get diseases much more costly
to treat than those related to smoking. In other words, the double pleasure of
more revenues and lower costs initially becomes the double pain of declining
revenues and higher costs into infinity. Thus, state government can’t suddenly
think it has this wonderful, enduring source of revenue that also keeps down
costs and now has a blank check to go spend like mad as a result.
Eliminate
or cap other counterproductive credits. If the two-thirds majorities needed to
eliminate the refund portions of those proposed credits can be mobilized, one
would hope they also could be for the three most wasteful not on the list – the
Motion
Picture Investor Tax Credit, the Solar
Tax Credit, and the Earned
Income Tax Credit. Already the film credit has attracted a gamut of bills
to limit it, and the simplest and most effective move here would be to cap it,
in order to allow a transition to its total elimination in the very near future
and to take care of obligations being incurred even as this is being read. Putting
it at $100 million for fiscal year 2016 where all eligible productions submit
totals and then they are doled out proportionally (perhaps adjusted to favor
smaller productions, which likelier are homegrown) should save $150 million
over the current open-ended version. The solar credit already is on its way
out, but just say no to it now. That would save an estimated $17
million. And the EITC should be abandoned at the end of this tax year, saving
$24 million.
Add
a few more ideas from the proposed budget. The Jindal Administration budget
did not include every revenue-generating, cost-saving idea in its plan, one
being the messy cigarettes-for-fess notion. But it suggested others that make
much more sense, including something already in motion, the selling of the remaining
portion not securitized of the 2001 tobacco settlement and dedicating the
proceeds to funding the Taylor Opportunity Program for Students awards.
Combined with granting more risk management autonomy to higher education this
would find another $45 million.
This brings the running total of
new revenues beyond the executive budget as currently constituted to $522
million. Keep in mind together at this point health care and higher education
are down $376 million, the partner hospital issue remains, and funding for the
half-year inventory tax rebate must be found.
Fund
all health care at existing levels. If $286 million is transferred out from
health care because of the new source of cigarette tax revenue, $189 million
can go to the rebate and the remainder kept there, leaving it $53 million short
(in future years, all of the new tax’s avails could go to smoking-related
illnesses, which seem to represent about a tenth of what Louisiana will spend
on Medicaid this year). Add in the EITC and solar tax credit repeals and it’s
only a few million short. Then take the film credit savings, apportion these to
the partner hospitals, and the leftover to Medicaid, and there’s no cut to
health care either state-directed or state-owned.
Give
higher education more pricing freedom. The autonomy and securitization money
can go to higher education, reducing that cut to $176 million. Another budget
suggestions, worth $10 million, asked to raise tuition on post-baccalaureate
study, requiring a two-thirds vote of each chamber to succeed.
The Legislature also could freeze
TOPS support at this year’s level, enabling next year’s 10 percent maximum
tuition hike allowed without legislative approval, which would take in an extra
$70 million, to realize all of that, instead of losing roughly $28 million to
TOPS reimbursement. But, most significantly, it needs to allow tuition
increases beyond that maximum (and, for the future, pass along a Constitutional
amendment ridding itself of that power to approve).
Simply, it should make known to higher
education that this year it will pass any tuition increase any institution puts
forward, because as part of that will be a study resolution forming a committee
to produce a report that will detail how higher education will transition away from
its current four boards, 14 baccalaureate-or-above institutions to a quasi-privatized
model like Oregon’s with as many senior institutions as Oregon, eight, by
two statewide elections from now, 2023.
If it follows through on graduate
tuition and TOPS changes, the cut would be $136 million. At that point, it’s
all in the hands of higher education. If its parts want to jack up tuition 20
percent more – and while some higher education leaders try to pass off sob
stories about how they can’t raise it more than the 10 percent the data
show that emphatically is not true – that eliminates the cut (and would
bring rates close to the southern average, of which they are well below at
present). Or, institutions could aim for efficiencies
that reflect the reality of and future to which races higher education and
not raise tuition as much. Or any concerned could choose whatever combination they
desire, for they will have the power and they will have to live with the
consequences, understanding the transition that lies ahead.
That’s it. All that’s needed is
clear-eyed recognition of reality, a commitment of putting the needs of the
state ahead of needs of certain constituencies, and an understanding of good
tax policy. That includes Jindal, who must understand that the Legislature
otherwise can put
him into a no-win situation. OK, here’s the plan, so everybody get on it.
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