Tax reform dead until Democrats relent on tax hikes

If we learned anything from the Louisiana Legislature’s stab at tax reform during this regular session, it’s that key Democrats mistake tax increases for it, denoting a harmful unseriousness about it all.

As the 2017 session draws to a close, it will end with no fundamental change occurring to the state’s tax system. This came despite a big buildup over the previous year, with a special panel created to study the issue. It produced a report that emphasized both creating a more efficient system that would spur economic growth yet somewhat contradicted by its desire to increase overall taxation levels.

A raft of proposals came and went, dominated by Democrat Gov. John Bel Edwards’ package that hewed more to hiking taxes collected, in net effect raising taxes on individuals somewhat but taxes on corporations substantially. These went nowhere, precisely because of the overall tax increase these would trigger; as such measures require a two-thirds majority in each chamber to pass, well more than that proportion of legislators, almost entirely Republicans, felt restraining the growth of government, if not putting it on a diet, would work to solve any projected budget deficit for the next fiscal year.

Less visibly, some legislators offered a number of other items focusing on system efficiency that would spur growth, which would increase revenues without moving overall marginal rates higher. However, including some complex efforts by GOP state Reps. Barry Ivey and Julie Stokes, these suffered the same eventual fate as Edwards’– but done in by Democrats unwilling to go along.

Ivey’s attempt in particular should have gained traction. Through 17 bills, he proposed constitutional amendments and statutory changes designed to produce essentially a revenue-neutral package for the short run but left a system far more encouraging to growth. It had its warts – for example, doubling the inefficient Earned Income Tax Credit – but, all together, would have made substantial progress in reducing the current fiscal system’s dysfunction.

Eventually, only measures that essentially created a flat rate in exchange for eliminating many exceptions made it to the Senate, after adding House amendments that tried to ensure revenue neutrality. Even those changes failed to convince some House Republicans to vote for these out of concern these did not take more from citizens.

Yet once over in the other chamber, Democrats, who despite being outnumbered almost 2:1 in the body hold a majority on the Revenue and Fiscal Affairs Committee to which the bills went, killed the instruments because they could, out of spite. State Sen. J.P. Morrell, chairman of the panel, said he couldn’t go along with those kinds of bills as these did not operate as part of what he called a comprehensive tax reform effort. Later he added that the House had sent over bills “cherry-picking” the task force recommendations, for which he would not abide.

Translation: because the bills did not undoubtedly raise tax overall revenue in the near term, that automatically disqualified them from consideration. To make that message unmistakable, fellow Democrat committee member and state party chairwoman state Sen. Karen Peterson opined that the selection sent over continued “foolishness,” decrying the refusal of the House to send over naked tax increases.

These items, built upon a more efficient tax system, should have had widespread nonpartisan agreement (a number of House Democrats did support these bills). Instead, Senate Democrat leaders seem intent upon holding these hostage in exchange for higher taxation.

That unhelpful attitude also permeates the House Democrat leadership. Caucus head state Rep. Gene Reynolds – who said he would leave the post in the near future – has petitioned the chamber’s Republican leaders, whose party enjoys roughly a 3:2 numerical advantage, to put more Democrats and even moderate Republicans on key money committees. His rationale: “How are we ever going to do tax reform if we never get any of those bills out of committee. We've got to stop this madness. We've got to get something done,” implying that tax reform necessarily must include revenue-raising bills.
As things stand, that won’t change without gubernatorial leadership to overcome such intransigence, and that won’t happen with Edwards in office. Sadly, that leaves genuine tax reform out in the cold until at least 2020.