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Unworkable plan wastes time in search for options

The old adage “if it looks too good to be true, it is,” certainly applies to a somewhat-eccentric idea that gained a public hearing which shows in even considering it that state lawmakers have reached a certain level of anxiety over a challenging budget situation for the next few years.

Ron Eldridge, an accountant with no apparent expertise in the area of constitutional law, in front of the state Senate’s Select Committee on Consumer Affairs and Technology explained his idea that could raise, depending upon the implementation of the plan, anywhere from $198 to $400 billion annually. He also asserted that as much as $57 billion a year could roll into the state’s coffers on an annual basis after hundreds of billions get spent on coastal restoration – tripling the current revenues coming into Louisiana.

Senators politely listened and murmured about how it was their duty to search out all options related to the fiscal picture of the state. Translation: especially if they have seen the companion web site associated with this effort, they realize that it is nowhere as simple as it was presented, both legally and politically, to the point that it may not have been a very productive use of their time even to entertain it.

Despite the formulator’s assertions, even to someone without a formal legal education problems with the idea’s constitutional status at the federal level leap out. Eldridge claims the tax passes the U.S. Constitution’s muster because he argues it meets the four-part test in Complete Auto Transit, Inc. v. Brady (1977). As it is, that turns out to be quite a stretch.

One part of that test demands that the state must not tax more than its fair share of the income of a taxpayer. Slicing as much as $400 billion annually out of oil and gas and/or pipeline operating companies seems to be a bit much for credence on this account (ExxonMobil Corp., the world’s largest nongovernment oil company, had a little over $31 billion in net income last year). This scheme establishes taxation by volume but that per capitation would have to be dramatically reduced before the reasonable jurist would opine that it met this part of the test.

But the proposal would founder hopelessly on another part of the test, that the tax must be fairly related to services provided to the taxpayer by the state. The rationale being used is that it is the value of the pipeline being taxed, but it is not really an activity, it is infrastructure – property. To get around this, Eldridge comes up with an argument so tortured that if its intensity could be applied to alleged terrorists in the extraction of vital intelligence, the War on Terror or whatever euphemism Democrats now use in reference to it would be over tomorrow – that it’s all connected to assumed coastal damage connected to transportation activities and therefore much of the proceeds would have to go to repairing that.

The very method of taxation also runs into federal constitutional problems. To avoid other aspects interpreted from the Constitution’s Commerce Clause, the tax supposedly is not on the product itself, but on the value of the pipeline even as that value is calculated by the value of the product going through it. This sleight-of-hand, however, does not compare to the legerdemain present in that the tax itself proposed is treated as excise in valuation on real property. Eldridge tries to deflect from this in declaring that Alaska and Montana have similar kinds of taxes, but this is incorrect. In Montana, for example, while the value of the pipeline is valued by its cost and revenues, it is a property tax millage that is applied to it.

This proposed approach runs into real problems with the Louisiana Constitution and also politically. The state’s constitution states (Art. VII Sec. 19) that the only state property tax that can be levied is up to 5.75 mills annually (currently none is levied). This would produce microscopic revenue figures compared to the ones advanced in front of the committee.

However, this does not seem to trouble Eldridge, who breezily admitted to accomplish this there would have to be state constitutional amending and, in his written documents, seems to expect a federal constitutional challenge that might well be successful. Still, he writes this should not be a deterrent to the plan (which in its full-blown form actually would end up eliminating other forms of taxation and instituting rebates on income and property) because even with an adverse judicial decision politically it would be impossible to refund monies already paid. And even if all of this was tempting enough to legislators and the public to proceed, oil and gas prices would skyrocket, he admits. Thus, this lack of realism in understanding the politics of the situation makes it more likely it never will be taken seriously than it ever would get into law and face a suit.

It’s good think creatively about these matters, but legislators would do better to turn their attention to more thoroughly baked suggestions than this one.

1 comment:

R G Sanders said...

Perhaps the state should consider a tax on all refined petroleum products destined for use outside of the state of Louisiana...and maybe Louisiana, Texas, Mississippi and Alabama could form a consortium that taxes hydrocarbon products, refined or otherwise, that pass through our states destined for states outside the consortium.

Certainly the Feds would have a problem with it, but then all we would have to do is turn off the taps--eventually they'd pay the piper.

My plan is no crazier than Eldridge's plan...but, I'm obviously not as crazy as Eldridge since I haven't sought a legislative audience.