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Tax study group seeks to ratify unneeded bigger govt

Increasingly clearly, a special state panel convened to study recommendations changing Louisiana’s tax code serves little more than an excuse to lock in overgrown government, specifically paying for Medicaid expansion, by making a temporary tax hike permanent.

Twice now the Task Force on Structural Changes in Budget and Tax Policy, put together by the Legislature, has postponed its final product originally due Sep. 1. If it stays on schedule legislators can analyze its product Nov. 1. Some of its members, however, have spoken of what should appear in the report to come.

Most prominently, it will recommend to make proceeds of a one cent hike in the sales tax permanent. The Republican-majority Legislature forced Democrat Gov. John Bel Edwards to accept this increase only through Jun. 30, 2018, balking at making it perpetual and/or putting any increased taxation in a form depending upon higher income taxes. Edwards and Democrats never liked this because of their belief that higher-income individuals should bear the costs of expanded government, and a greater proportion of sales taxes come from households outside of this category of people than in the case of income taxes.

Thus, the group plans to include items such as removing deductibility on federal income taxes and broadening the kinds of services on which the sales tax would apply, in exchange for lowering the rate back to four pennies on the dollar. In essence, the additional cent becomes monetized into increased taxation on income earned disproportionately by those with higher incomes and on activities paid for disproportionately by the same cohort.

That would violate two desirable norms of tax policy. First, it encourages greater progressivity that, ironically, hurts the majority paying less as through the attenuation of economic growth it causes lower incomes and makes those individuals less able to improve their economic situations. That tactic as well as favors minority interests that use legislative fiat to favor themselves economically through uses of exceptions. Second, it makes less likely that the recipients of government largesse contribute to their gift given by taxpayers, introducing more division into society’s fabric. The most moral case rests with flattening and broadening the tax base.

Those matters aside, this approach, by reapportioning the temporary increase instead of eliminating it, ratifies bigger, unnecessary government. At present, when comparing Louisiana’s per capita state spending (22nd among the states and the District of Columbia) and state personal per capita income (30th), the state ranks 16th in proportion of state spending of personal income. This indicates that it spends too much, not that it does not have enough revenue.

Actually, with some recognition of that by policy-makers, almost all agencies in Louisiana state government, comparing the fiscal year 2017 budget to the eventual FY 2016 plan, hardly had any increases in spending from the general fund; i.e. the destination of receipts from the kinds of taxes the panel has studied. In fact, when factoring in a one-year accounting trick used to reclassify some general fund dollars as statutory dedications to higher education, only one department had anything more than a trivial increase or decrease in general fund revenues: the Department of Health. Without it, elected officials budgeted only $63 million total more of general funds for all of state government.

Health, however, got an additional $507 million, an increase of 21.9 percent, or over three times the average annual increase of 7.2 percent during the second term of Republican Gov. Bobby Jindal. Only one significant policy change occurred in this area since Edwards took office: he ordered the expansion of Medicaid, alleging that it would save the state money.

His assertion, apparently the product of assumptions that providers openly questioned as unrealistic, contradicted empirical studies done under Jindal that relied upon historical data. To this day, the Edwards Administration has not released any details, like those that appear in the reports from the Jindal Administration, on how it came up with this money-saving allegation. Even without that, the budget information makes the invalidity of Edwards’ claim clear: Medicaid expansion will not produce savings; rather, it is the main reason why Edwards sought those tax increases.

And now the tax study group plans to cement that massive expansion of government into fiscal policy by building reform on the basis of retention of the extra penny, estimated to bring in $881 million a year. For legislators wishing to right-size state government, any plan doing that they must consider dead on arrival, and such a product should frustrate taxpayers as a waste of money designed only to justify retention of outsized government.

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