LA public asks for smarter, not bigger, state govt

Efforts at tax simplification and whittling away roads needs in Louisiana won’t necessarily dissipate if policy-makers won’t use these as excuses to raise taxes.

About the time the state’s Task Force on Structural Changes in Budget and Tax Policy released its report to accomplish its mission, voters turned away a constitutional amendment that would have implemented a matter related to the panel’s final report: removing the constitutional protection of corporations to deduct federal taxes paid for their state tax liability. Companion legislation would have removed the deduction and refigured marginal corporate tax rates from several brackets topping out at 8 percent to a flat rate of 6.5 percent.

That attempt echoed the report’s suggestion that the same happen to the constitutional protection mandating individual deductibility along the same lines. If the electorate felt uneasy about the corporate version, that could make the same in the case of individuals dead in the water, a notion floated by the House Republican leadership.

Perhaps not, according to Democrat Gov. John Bel Edwards. He argued the defeat came because the amendment’s ballot language didn’t make clear that the matter applied only to corporations. He further stated that insufficient publicity occurred asserting that the measure and its companion statutory changes would have resulted in revenue neutrality.

But neither claim rings true. The actual ballot language read, “Do you support an amendment to eliminate the deductibility of federal income taxes paid in computing state corporate income taxes?” – lacking no clarity that the change would affect only corporations. And analysis of its and its companions’ fiscal impact – admittedly imprecise given the expansive dynamics involved – gave a best guess that the combination would increase tax take by around $20 million annually typically.

While trading tax simplification and greater state control over its revenue sources might be worth an additional payment of $20 million a year by taxpayers, apparently not enough of them thought that way. And as the compensatory lowering of rates did not appear on the ballot description, this explains the defeat of the item: voters saw this as a tax hike on corporations that would end up passed along to consumers.

Thus, the Edwards Administration muses about a pipe dream in arguing if it just could “educate the public” these kinds of swaps would succeed. Voters already were educated on the matter: the amendment did not signal unambiguous revenue neutrality and they rejected it for that reason. Any future attempt that does not give the electorate reason to think the end product would feed state government more tax money also will not pass.

As a result, regarding individuals, lawmakers may try to dislodge another deduction, over “excess” deductions according to the federal tax code that also Louisianans may use as a shield against state individual income taxation. With this break in statute, a bill could change it. However, this would require a supermajority to repeal, and as the House leadership has voiced skepticism over the general swapping approach, that also should falter unless any bill doing such assured legislators of its revenue neutrality.

The same view should apply to the related issue of an increase in retail fuel taxes for motorists. The current aggregate 20 cents a gallon the Edwards Administration argues should rise by at least half, if not double, in order to fulfill a transportation wish list that could go as high as an extra $600 million in annual spending, with it asserting that years of “ignoring the truth” have created a backlog of $13 billion.

Yet the public should regard with caution any such hike. Over a quarter of a century ago voters imposed a special 4 cent a gallon tax on drivers to fund 16 special projects. Two remain unfinished, abandonment of the pay-as-you-go plan in favor of bonds will continue debt servicing for decades, and already about a quarter of that comes from the 16 cent general levy that will total $1 billion over almost 30 years. Meanwhile, the original project costs have increased over 270 percent.

In short, the Edwards Administration asks roads users to pay more for past mistakes with no guarantee that these will not recur. Before it cajoles legislators to provide another supermajority backing to enable this, it must garner trust that more sensible spending will occur through pursuing alternatives such as ensuring state fees related to vehicle operation align with actual service provision costs, meaning more general fund dollars can go to roads rather than subsidizing operations, and meeting needs by giving priority to less expensive existing rather than new construction.

A recognition that the public wants smarter, not bigger, government can accomplish goals such as these. Deviation from this course risks nothing at all getting done.