Not real reform, Edwards tax changes fail anyway

Think of how much Louisiana Democrat Gov. John Bel Edwards would have struggled had he actually tried genuine tax and fiscal reform.

When his old desk-mate state Democrat Rep. Sam Jones euthanized Edwards’ idea of a gross receipts tax out of its misery earlier this week, that ended what little resemblance the governor’s agenda had to addressing the state’s Byzantine and inefficient fiscal structure. Without the measure in place, not only did his plan lose its primary aspect, the raising of more money for government to spend, but also it no longer had a compensatory mechanism to offset changes to individual and corporate income rates, lowering these while broadening the base through the elimination of targeted exceptions.

Of course, he intended the plan first and foremost to inflate the budget, with any reform a byproduct, and tried to take the easy way to do it. That strategy aimed to avoid what plagued the efforts of Republican former Gov. Bobby Jindal, who four years ago also tried to tackle the same structural issues but in a much more comprehensive way.

Jindal’s original plan would have raised sales taxes not much farther above the present level in exchange for getting rid of all income and franchise taxation, plus raising the cigarette tax and applying the new sales rate to services. Left at that, this would have wiped out tax exceptions, but he also kept a few as rebates and, most significantly, created one for lower-income individuals.

Unfortunately – perhaps because he was mulling a run for the presidency at the end of his term and wished to appear like he didn’t want to raise taxes on anybody – as it seemed here or there some group would end up paying more under his plan, alterations occurred that made it increasingly convoluted. To pay off an increasing number of rebates, the sales tax rate went up in order to keep the plan revenue neutral. This became too much for business interests; just as they would complain four years later about Edwards’ idea passing too many new taxes onto to business, they said the same about Jindal’s notion and opposed it as well.

Despite momentum going in favor of some kind of tax reform, at that point Jindal simply chucked the whole idea and seemed to become distracted over new issues, such as whether to implement the Common Core State Standards Initiative. Likewise, Edwards appears to have washed his hands over reform, declaring it the responsibility of the Legislature to tackle.

Note how Jindal made a real effort to fix what ails the system: trading a dizzying array of exceptions that created winners and losers depending upon what you did or how you spent money for simplification aligned with the optimal configuration for economic growth – high on sales tax, no income tax, in a revenue-neutral fashion. Indeed, research forecast it would spur formation of thousands of new jobs and economic growth.

By contrast, Edwards simply wanted to slap a new, convoluted gross receipts tax chock full of loopholes onto the existing creaky superstructure, while making modest income and sales tax rate reductions and tinkering with exceptions and expanding the base. This did not “reform” the structure, it merely tried to squeeze more revenue out of what existed. If for no other reason than it constituted an excuse to raise around $1.3 billion more in revenues on top of $2.4 billion in tax increases over the past two years, it deserved its demise.

But its pretense that it induced reform of any kind also merited its dismissal. It would have made matters worse, although Edwards and his allies surely would have prattled on about how they had “reformed” the system and assigning him credit for something assuredly that in reality would not have happened and would have fixed nothing that ails Louisiana.

Had Jindal not structured changes that bent so far backwards to try to prevent losers – even when revenue neutral in the short term, winners and losers always emerge from tax reform – he could have come up with something that made a real contribution acceptable to the Legislature, interests, and a majority of the public. Edwards didn’t even try real reform, and got slapped down just as decisively.

If we have learned anything in the past four years, it’s that Louisiana tax and fiscal reform are really hard to do. And that Edwards clearly isn’t they guy who can get it done in a meaningful way.