Candidates must disavow Edwards' ITEP changes

Absent major tax reform addressing this concern, Louisiana’s gubernatorial candidates will need to fix a problem introduced by Democrat Gov. John Bel Edwards involving the state’s Industrial Tax Exemption Program.

Relatively high property taxes hamstring commercial and industrial activities in the state. Comparative data are scarce among counties across the country, but the latest version of the most comprehensive study of these rates, which takes the largest city in each state as representative of all that in most cases, Louisiana included, represents adequately the overall rate picture, New Orleans/Louisiana had the 20^th highest business property tax rates but, worse, the eighth highest rate imposed on industry.

The ITEP idea seeks to attract commerce, to offset these high rates, by allowing an exemption of the entirely of the tax up to ten years. It’s cumbersome and far better ways of ensuring everybody pays their fair share exist, such through amending the Constitution to lower the homestead exemption and also eliminate the corporate income tax while reducing state dollars going to local governments, a related version of a proposal by gubernatorial candidate Republican state Rep. Richard Nelson. This could allow for junking ITEP and while this means corporate local property taxes would go up their state income taxes would go down to compensate in the aggregate.

But until something like that happens, the flawed ITEP is the thing standing between Louisiana and making worse its already poor state business tax climate. That’s something Edwards sought to weaken with an executive order kowtowing to courthouse gangs and big government advocates, which reduces the values of the exemption and not only gives select local governments veto authority over that reduced compensation but also one he may exercise as well.

That played out recently with a decision over Folgers Coffee Co. expansion plans in New Orleans. Local governments disallowed some or all of the requests, but the state’s Board of Commerce and Industry – mostly Edwards appointees coterminous with his term – surprisingly mustered a majority to overrule them. Then Edward slapped his recalcitrant lackeys back into reality by overturning it in favor of the local governments.

This will have long term negative effects that the special interests whose agendas are served by jacking up local taxes have attempted to deflect. That deception came in the form of a poorly-executed advocacy document passed off as respectable research publicized months ago that purported to show no ill-effects occurred from ITEP petitioners not receiving tax offsets.

Contracted by the anti-prosperity leftist interest group Together Louisiana, the Institute for Energy Economics and Financial Analysis – an anti-fossil fuel organization with a history of deficient analyses attacking the fossil fuel energy industry (a large portion of ITEP projects come from that industry) – released a report that noted most rejected ITEP requests since Edwards’ order took effect went ahead anyway. From this, it made the inferential leap that the changes didn’t discourage corporate investment and actually argued this strengthened the business climate.

That analysis would make any instructor or practitioner of public policy research and evaluation cringe. The design it used is called a “one-shot case study” – no pre-test, an intervention levied onto one case, and then results thereafter all assumed a product of the intervention without any control group with which to compare. This design is abhorred for the many threats to validity it poses in contrast to better designs.

In this instance, of several the most devastating is, without a control group or measurement of projects encouraged or discouraged by the previous rules and then after the change in rules, there’s no way to tell what impact the change had on contemplated projects never even attempted because of uncertainty of approval. There is, after all, plenty of cases where the threat of higher local property taxes was a factor, although perhaps not the only, causing firms to send capital investment elsewhere to other states.

Further, the analysis inappropriately judges the merit of the changes on how much it grew government, not on impact on economic opportunity and quality of life for the citizenry. Nor does it account for increased costs passed along to the people, as firms going ahead with projects without maximal ITEP benefits largely if not wholly passed along these increased costs to consumers and/or cut jobs to make up the extra tax. This study is next to worthless.

So, unless some radical overhaul of the tax code occurs, Edwards’ ITEP changes themselves must have a radical overhaul, if not their entire excisement. It’s one reason the state’s business tax climate became significantly worse within a year of the order’s promulgation, coinciding with Edwards taking office, and only recently moved out of the bottom ten states with income tax cuts Edwards resisted, where it had fallen to as soon as Edwards got in and issued the order as well as backed other tax increases.

Gubernatorial candidates need to pledge to move away as quickly as possible from the Edwards rules, either by rescinding his order or by doing the heavy lifting of major tax reform.