As it appears Republican Gov. Jeff Landry is gearing up to call a special session of the Louisiana Legislature later this year to tackle fiscal reform, he needs to draw from lessons of the past to ensure its success.
This perennial topic has become more urgent with plans to allow tax increases under his predecessor to fade away at the end of the current fiscal year. Ideally, reform puts the state in the posture that increased efficiency/decreased distortion in its taxing and spending structure prompts greater economic growth that causes higher tax revenues without raising marginal rates and targets better expenditures towards genuine needs.
Most important and basic, reform must undertake goals realistic to the political resources at hand. This doomed reform efforts in the Republican former Gov. Buddy Roemer era, where he aimed too high and missed.
Principally, this applies to desirable constitutional changes that removes fiscal matters from the document, which not only require two-thirds majorities tenuously held in both legislative chambers – almost no Democrats will support this as the current system fulfills their ideological imperative with its bias towards bigger government and more spending, and a few Republicans will go wobbly with them unless their feet are held to the fire politically – but also a majority popular vote. Selections for downgrade into statute, where simple majorities then can make alterations, must have great assurance for legislative passage and voter approval, for failure disrupts what must be a fine policy balancing act and politically forfeits another chance at reform for years to come.
Also, drafters can’t try to please everybody, or even assure that nobody will see a tax increase as a result. Actually, it’s possible to get close to this – witness the effort by Republican former Gov. Bobby Jindal, who came up with just such a plan just over a decade ago. But the problem was this became so complicated in details that legislators wouldn’t commit in sufficient numbers. Voters are the same; just as legislators want something simple enough to explain to them why they approved of something, majorities that don’t understand something vote against it. The one recent (2002) example of major reform that electorally succeeded – barely at the ballot box – was fairly simple: raise income tax rates on higher earners for a permanent lower sales tax rate while keeping a raft of exceptions on that presumably aided lower income households. (Unfortunately, this only amplified the spend-first bias of the present system and eventually partially was rectified.)
Jindal’s plan particularly foundered because the group likeliest to see a tax increase, even if miniscule, were the lowest income earners, and it bent over backwards to try to eliminate that. If reform causes that, so be it. The lowest earners have a plethora of transfer payments upon which to fall back, yet filers under $20,000 in income all of whom at that level qualify for various benefits worth tens of thousands of dollars a year pay less than one percent of all income taxes in the state (indeed, because of the earned income tax credit many don’t pay income taxes at all and get money shipped to them by the federal and state governments). With such a bounty of gifts, it’s not too much to ask this stratum to pay its fair share towards running a government so generous to it.
Finally, reformers can’t take half-measures in eliminating exceptions and flattening rates. Previous reform efforts haven’t even made it to the ballot box too often because anything having to do with removing exceptions brought out of the woodwork all sorts of apologists to retain these that salvaged some, and then those left behind could find enough legislative supporters to torpedo changes. It has to be a straight-up trade: a lower (for most filers) and a flat rate with few exceptions of any kind (or perhaps in the case of corporate taxation, no rates thus no exceptions). Only the most consequential, such as keeping if not raising the standard individual deduction, should be kept.
Tricky here will be how far should the general exception applied to services be altered, because broadening taxation to these will being out cries for specific exceptions. Again, an all-or-nothing strategy is the most politically feasible, as well as from a tax efficiency standpoint also the most economically meritorious.
Follow these and there’s a good chance something could happen in time for forwarding to the Secretary of State for ballot inclusion for the March elections, which would give time if approved for fiscal year 2025 budgeting and put Louisiana on a much better fiscal path for the future.
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