Reports highlight needed LA policy reforms

When Louisiana’s legislators start filing bills for the 2019 regular session, those interested in fiscal reform would do well to follow a three-part roadmap laid out by the Pelican Institute.

Its latest study reviews the state’s means of generating revenue. This follows papers dealing with intergovernmental relations and budgeting. Although a complete overhaul along the lines of these efforts would require amending the Constitution, and frankly in ways unlikely to gather the necessary legislative support to present these to voters (which is why the group favors a constitutional convention to carry it all out), statutory changes it suggests would make for improvement.

The tax reform it argues for would produce a flattened, broadened, and largely revenue-neutral code when compared to two different baselines. For individuals, establishing a flat income tax rate of four percent while raising the standard deduction and wiping out some big-ticket exemptions, such as for federal taxes paid and excess itemized deductions, as well as other smaller ones would keep revenues stable while actually shifting more burden onto a small number of higher-income filers. This scenario it offers as a fallback to adjusting deductions further to roll back tax increases made last year.

For corporations, it would wipe out that income tax entirely. Why not; as the report notes, the vast majority of this tax goes uncollected because of numerous exemptions. It makes much sense just to get rid of it and all the credits and rebates that go with it — which, of course, would lead to intense special-interest lobbying in opposition. Short of that, it recommends a lower flat rate and excising most exemptions. Additionally, it asks to eliminate the franchise tax and the inventory tax, which promote counterproductive legerdemain, and incentive programs that create jobs, such as the Motion Picture Investors Tax Credit, because they do so wastefully.

Under either the current baseline or one without the 2018 tax hikes, the state would take in fewer revenues, but unleash, in the second instance, annual gross domestic product growth 0.5 percent higher and employment growth 0.2 percent higher. Eventually, the higher wages and lower unemployment that result should allow tax revenues to catch up.

This tax reform should occur in tandem with changes wrought for local governments. A previous Pelican study on these outlined how restrictions on parishes to raise their own funds interact with generous state subsidization to create a dysfunctional relationship that spends policy-maker energy on lobbying for redistribution rather than in concocting policies to compete for economic growth.

While just about all of the specific changes the reports would like to see have appeared in either or both of legislative backed initiatives in 2011 and 2017, as well as have appeared in this space and in other places, it’s still good to have these collated and presented as a whole, with some up-to-date numbers backing up their value. These also follow a report issued last October on budgeting practices, which sensibly (and, again, echoing others) calls for dramatic curtailment of dedicated funding, increasing the size of the Budget Stabilization Fund, a realistic state spending cap, reducing gubernatorial discretion over capital budget items, and implementing contingency budgeting.

It’s especially good to see Pelican take on a bigger role in public policy debates, whose participation had slacked in recent years (for example, being completely AWOL in the debate over Medicaid expansion, where leftist interests dominated the analytical debate, challenged only by this space and occasionally other voices). With these reports, it shows itself ready to ramp up its level of participation, a welcome development.