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Wasteful credit retention sabotages Jindal tax swap plan

Already the political left has the garrote out to strangle in the cradle Gov. Bobby Jindal’s audacious tax reform that eliminates income taxes in favor of sales taxes. For this to survive to maturity, those interested in the societal benefits of increased economic development must not hand the revanchists the instrument of its death.

Liberals, whose view of utopia as far as economics goes concentrates more on its use as an instrument of government power and to transfer wealth from its earners to favored constituencies than as a tool to increase wealth in the aggregate, loathe Jindal’s notion to make Louisiana state income taxation disappear. That compounds with the intent of sales taxes to make up the gap to create a revenue neutral plan, leading to indignant cries that the poorer could pay more in total taxes under this structure.

While such claims, as recently noted, are much overblown, the fact is, among the poorer who pay no net state income tax, even as a large portion will be no worse off than before, some of them will getting a smaller kickback in the form of a kind of rebate for the state Earned Income Tax Credit and still others actually will end up paying more in taxes than receive any corresponding governmental benefits. Simply put, however you define the relatively poor (one such leftist interest group studying the impact of the changes pegged those who made $12,000 or less in this category), given the very general outline of the plan heretofore discussed, in aggregate they will pay more.

That’s unavoidable, but also desirable. Even as spending habits of those with lower incomes would change, away from choices that are not necessities because necessities will continue to be exempt from state sales tax, and the greater wealth of society being created by a shift away from penalizing investment and savings towards discouraging consumption, best empirical guesses are that those arguing solely on the basis that the shifting tax burden favors those of lower incomes is hard to sustain. Thus, the other, qualitative justifications must be emphasized to win sufficient public and lawmaker support.

In short, these are that such a shift improves the quality of democracy by having lower-income households put more of their own resources and investment into play to be affected by policy consequences, it encourages them to make better choices by disincentives to consume conspicuously or frivolously in the hopes that they chose less present-oriented activities now increased in value of reward without a tax to weigh them down, and that this reduces the immoral impact of a system that conveys the most benefits to those who contribute the least to it, and vice-versa, that creates less opportunity for some to use others by siphoning their wealth to support their selfish choices.

But from the rhetoric that came from Department of Revenue Special Counsel Tim Barfield in an address to the Louisiana Association of Business and Industry shows that the Jindal Administration may not have grasped this idea or that it is not entirely serious about pursuing this reform. During this, Barfield mentioned, even as he stressed the necessities exemption and potential of an EITC-like rebate really takes the sting out of a higher sales tax rate for the poorer, some kind of intent to retain a number of presumed economic development incentives.

Perhaps the most notorious of these is the motion picture tax credit available to makers of movies (although most of them by amount end up in the hands of wealthier Louisianans, some of whom are lawmakers or Public Service Commissioners), where taxpayers pay over seven dollars to these people for every dollar those people’s activities put into state coffers. Other programs are not nearly as so wasteful or counterproductive, but their inclusion in any larger, more detailed tax swap plan negates also the superior moral case for it.

The most crucial political aspect of the whole notion is gaining the two-thirds vote in the Legislature required to get sales taxes increased, or to put forth the change as a Constitutional amendment that then also requires majority consent of the voters. However, being as the quantitative case cannot be demonstrated that those of lower incomes will pay no more taxes in aggregate, the moral case cannot be made convincingly if the higher amount of taxes paid by the poorer end up flowing to the pockets of favored constituencies like, as in this instance, a few filmmakers/dilettantes and wealthy tax avoiders. Conservative policy cannot be based nor justified by liberal premises if it hopes to succeed.
Thus, if the Jindal Administration wants a package along these lines to succeed, it must not include in the final product the conversion from tax credit to rebate any like in the case of filmmaking where they are not empirically shown to be cost effective. It cannot allow a lack of self-awareness on its part to hand to saboteurs the means by which to extinguish a laudable, moral policy change it claims to support.

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