GOP's best plan at risk by greasing squeaky wheels

The same dynamic that sunk Republican former Gov. Bobby Jindal’s fiscal reforms of nearly a dozen years ago now threatens GOP Gov. Jeff Landry’s related measure.

In 2013, Jindal proposed sweeping but basically revenue neutral changes to the state’s fiscal structure that eliminated income taxes, increased business sales taxes, added services to taxation, got rid of some exemptions connected to mineral resources, and increasing the cigarette tax. In 2024, Landry has proposed an essentially revenue neutral plan that creates a low flat income tax with an increased filer deduction that eliminates income taxation for lower-income individuals, increases sales taxes, adds services to taxation, gets rid of some exemptions, and makes permanent a business utilities tax.

Jindal’s plan, which also included some attempt to rebate higher sales taxes passed through to individuals, foundered because it was complex in its attempt to make sure as few people’s taxes increased overall as possible. Only a bit less intensely does Landry’s plan try to do the same thing, and like Jindal’s has run into opposition from those most likely to suffer financially from the changes.

In this instance, that focused on the choppy waters faced by HB 9 by Republican state Rep. Neil Riser, which would expand the reach of the sales tax – which would go to statewide 4.4 percent or a slight drop from the current level that includes a temporary tax due to expire mid-2025 – and to a lesser degree marginal changes made to HB 10 by GOP state Rep. Mark Wright that sets the new rate and removes many exemptions. The latter passed in the House but barely over the two-thirds threshold needed to eliminate tax exceptions and diluted somewhat, then drew a hearing Sunday by the Senate Revenue and Fiscal Affairs Committee which at its next meeting will pass in a form even more diluted.

Trying to keep the plan as a whole close to revenue neutral in the short term – the goal is to see revenue increases without rate increases in the long run (the plan in its original form was estimated to being in $266 million more through fiscal year 2029 to the general fund, but the latest fiscal notes that include changes to dedicated funds predict $1.854 billion fewer)– and slightly more progressive overall, HB 9 in its original form provided a crucial $500 million to balance things out. Riser, in testimony to another bill in front of the Senate panel, mentioned that changes made or promised through the day’s hearing without HB 9 left matters $680 million short.

In theory, those entities who would find new sales taxation on themselves could slough much of it off on consumers, even as that would decrease demand a bit for their services and raise compliance costs, although not all that much. Here, the state’s convoluted decentralized sales tax regime works against reform, but even so the large swath of small businesses which operate in one place just would have to calculate price times .044 plus local taxes and submit correctly to the parish sheriff frequently and Department of Revenue less frequently and that’s it. As it is, it’s really larger business representatives who have paraded in front of committees complaining about both bills.

But not to be forgotten is income tax cuts that should, in many cases, more than make up for sales taxes paid, both to individuals passed through and not to businesses. Again, however, of the various income tax exemption programs that would be sliced out larger businesses tend to benefit from these, meaning with reduced business they might end up paying more. The fact is, someone has to with tax changes designed to be revenue neutral and they look to be the most likely culprit, hence the squeaky wheels.

Which, if Republican legislators view the exercise narrowly and don’t look at the holistic picture – and as big business tends to favor their candidacies they often make policy that supplies the grease – will sabotage the entire effort that they ought to support. Income taxation is loved by the political left because it most faithfully provides the biggest potential revenue upsides that encourage growth of government, as opposed to the much steadier revenue stream from sales taxation. The left, if it can’t stop the package, would love to see plan changes made to its baseline that decrease reliance on sales taxation and increase it on income taxation.

That’s what it may come to. With roughly every tenth of a point of increased individual income tax rate, which the plan wants at 3 percent, state revenues increase by about $100 million. Grab four-tenths to 3.4 percent and reverse a change a few years back that sensibly sent vehicle taxes to roads construction back into the general fund that produces around $280 million annually otherwise uncommitted and that would make up the difference quoted by Riser. Or, alternatively increase the intended corporate flat tax rate of 3.5 percent, which highlights that many of those objecting will get hit one way or the other.

Yet it doesn’t have to come to that. Republicans across the board need to keep their eyes on the prize and make it as much of an income tax for sales tax swap as makes economic sense. That’s the fairest and best way to trigger economic development, and taking income taxation away as much as possible as a source of government funding provides the best strategy to fulfill its twin: reining in spending, which concerns many legislators equally. That will mean greater resolve in avoidance of listening to the siren song made by a part of their electoral bases.