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Blanco's "sin" taxes are convenient, not right

Is the Blanco Administration trying to perfect the art of mixed, disingenuous messages that have caused part of the lack of economic development in the state?

Last year, Gov. Kathleen Blanco got applause for not trying to hold certain programs “hostage” over budget deficits. That is, compared to past administrations (and also the Clinton presidential administration), her forces wouldn’t declare a popular and/or vital program in state government would be cut unless taxes got raised or some other drastic measure occurred.

But on the eve of the legal requirement of budget submission to the Joint Legislative Committee on the Budget 45 days ahead of the beginning of the legislative session, Blanco served notice that certain budget cuts would be “draconian.” Chief of Staff (and Foster Administration holdover) Andy Kopplin suggested the cuts merely are to be “severe.”

This may constitute one part of a campaign to pave more acceptance for “sin” taxes to which the governor continues to grant credibility. Given that perhaps not even half of Louisianans may do any of gambling, or smoking, or boozing (let’s get real here, this is Louisiana) perhaps this tax might even appeal to a majority. Nevertheless, a tax is still a tax, no matter what activity it is on.

In large part, it betrays a mentality akin to former Sen. Russell Long’s favorite aphorism, “don’t tax you, don’t tax me, tax the fellow behind the tree,” without taking into account the consequences of that tax. The largest portion potentially of it would come from gambling, already the activity with the highest tax burden in the state (the only thing perhaps as much being the 66 cents per liter on retail alcohol). As costs of this activity increase, to casinos for example, other pastures begin to look greener and greener.

In addition, money gets diverted out of the private sector (consider the impact a rise in the state’s video draw poker take on small, three-machine businesses some of whom argue they stay afloat only because of the machines) and if there’s any one thing anybody should know about economic development, it’s that money left in the private sector will do a better job of doing this than confiscating these resources and putting them at the disposal of the public sector (although some people still don’t seem to get it).

The other part of this campaign is to try to create linkage between the increased taxes and a perceived popular and/or vital need of the state. Blanco has done so with her statement that enough could be raised from them to give teachers a $1,000 salary boost.

Yet we need to question the assumptions behind this logic. For one, given that there are roughly 50,000 teachers in the state, this would cost $50 million. A review of forecasts for fiscal year 2003-04 totals predicted that tobacco and alcohol taxes combined would bring in only about $117 million not already allocated somewhere else. The bulk of this increase would have to come from the forecasted $680 million from all sources of gambling (assuming all sources are on the table, although the land-based New Orleans casino likely is not). Taking out the casino, we’re talking about an 8 percent increase across the board on all these taxes (and this is using static analysis, assuming the demand for these kinds of behavior do not decrease as a result of higher taxation). Is the Legislature really ready to go as high as a probable 10 percent increase across the “sinful” board?

The other questionable assumption is whether teachers really do need a pay increase. In fact, in a report prepared for the Board of Elementary and Secondary Education, under one scenario the authors questioned the need for a teachers’ salary raise given the objectives of increasing accountability and performance of schools and students (but in this and all other scenarios they noted a minimum hundreds of millions of dollars would be needed for any reform). In another, they did see a need for increasing teachers’ salaries; in both, they saw the real need as additional hiring of teachers.

However, both of these scenarios argued that Louisiana schools were overstaffed in some areas, principally in guidance counselors. Not including benefits, one scenario predicted the elimination of some guidance counselor positions would save $34.5 million, and the other saw savings of $55.8 million.

Given Blanco’s keenness on giving raises, why not restructure first to save and transfer savings into teachers’ salaries, instead of keeping things the way they are and asking for people to cough up more money to government? While the fiscally prudent thing to do, no doubt Blanco and legislators (and hundreds of school board members) would feel intimidated by irate ex-guidance counselors seeking retribution at the ballot box.

Which is why Louisiana has such a tax-and-spend history. Instead of doing the right thing, its leaders do the convenient thing. Which is what Blanco is doing by proposing these new taxes.


Kevin said...

Dr. Sadow,

As I proposed on my own blog, I think our esteemed governorness should adopt a few modest proposals to boost revenue for her sin taxes (even though I concentrate on smoking, the same principles can be applied for boozing and gaming), since this is all for the children of course.

Jeff Sadow said...

Yeah. Better, legalize prostitution of all kinds (not just the kind a few policy-makers practice for money with special interests), tax it, and the state's deficit will disappear within a year. But you didn't hear this from me.

PJ said...

Since prostitution is illegal just rename it horizontal entertainment then tax it.I am sure the Louisiana Supreme Court want have a problem with that.