Overspending, overtaxing thwart LA budgeting

To answer the question posed by a recent news article, no, Louisiana’s budget isn’t really sound.

That disagrees with the sentiments of Democrat Gov. John Bel Edwards, who after the Legislature voted to reinstitute for seven years 0.45 percent of sales tax at the beginning of the month – keeping Louisiana’s the highest aggregated in the country – asserted fiscal problems solved now and so he couldn’t wait to start spending on raises and doling out largesse. And that’s the very reason he’s wrong.

Of course, since Edwards promised a permanent resolution where revenues kept up with expenditures but instead he produced a temporary solution that detracts from economic growth – according to Pelican Institute numbers the increase will shave $156 million off the state’s annual gross domestic product and cost over 2,500 jobs – he has to paint stripes on a zebra and call it a horse. Simply, Louisiana’s fiscal structure sets it on auto-pilot that, with politicians’ cooperation, produces eternally spending escalation faster that revenue growth.

Hope springs eternal, according to Republican Sen. Pres. John Alario, among legislators that this won’t happen. They always want to think that economic growth will surpass the rate of increase for spending and thus the state catches up, if not then can fund more things. Yet it never works out that way, because of the overtaxed and badly prioritized nature of the system.

Whether it comes in the form of inefficient if not counterproductive forgone revenues – such as the Earned Income Tax Credit and Motion Picture Investors Tax Credit – or misplaced spending caused by dedications excessively covering low-priority items while more important ones go begging, the state could mask and support this spending problem if revenue production could increase. That won’t happen because too much in the way of taxes sap the economic growth necessary to sustain overspending.

As a case in point, consider the state’s situation at the end of 2014. Oil had reached a peak price towards the end of June but by year’s end had begun a precipitous fall. At the year’s conclusion, the civilian work force numbered over 2,193,000; some 2,041,000 had jobs; the labor force participation rate stood at 61.4 percent; and the unemployment rate was 6.9 percent with 152,000 wanting to work looking for work.

Throughout 2015 the price of oil nosedived. One year after the peak, the state raised taxes several hundred million dollars, mainly by stripping temporarily exemptions from sales and income taxation. Just after Edwards took office in 2016, oil prices began moving slowly upwards, a trend sustained to this day. Naturally, just as it took a few months for the downturn to take hold, the turnaround would take months to filter into the economy.

But in this tough environment, another round in 2016 of similarly-sized growth-sapping tax increases hit the people starting in April and July. Some of these returned at the beginning of this month, joined by some new ones.

The result? Most recently, the civilian workforce was at 2,139,000 with the same 2,041,000 or so having jobs. With only fewer than 98,000 wanting to and looking for work, the unemployment rate had fallen to 4.6 percent, but the large numbers leaving the workforce produced a labor force participation rate of 59.5 percent. In part, this would come from Medicaid expansion, which allowed some able-bodied individuals to quit wanting to work because now they could get taxpayers to pick up their health insurance tabs.

These numbers came from a population only about 30,000 higher from the middle of 2014 to 2017, or well below a one percent gain. Altogether, from the middle of 2015 when the tax hikes hit through the middle of 2017, the state’s economy shrank 0.6 percent, the most in the nation.

Louisiana certainly lagged the country as a whole in this period. Nationally, the unemployment rate fell from 5.6 to 4.0 percent while total employed increased about 5 percent. The labor force participation rate inched down 0.1 percent to 62.7, and the total number unemployed fell from 8.7 million to 6.1 million despite an increasing population of 1.5 percent. And, the national economy grew 8.5 percent from 2015 to 2017.

These numbers make for a pretty good argument that Louisiana has had the worst performing state economy in the nation since the end of 2014. It’s not coincidental that among the states it has raised taxes more aggressively than almost all. Thus, it’s no accident that it won’t grow its way out of an ongoing deficit from a budget that grows every year by hundreds of millions of dollars.

That’s why Louisiana’s budget going forward isn’t sound. As long as a tax-and-spend governor refuses to put the brakes on overspending, such policies damage the economy so the state never can recover, leading to a vicious cycle of continuing tax increases that keep creating deficits.