In the days prior to the session’s launch next
week, the state announced Gameloft
would close its New Orleans office, reneging on a deal to bring more jobs
to the state. This meant it gave away nearly a million dollars over the past
seven years to the gaming firm under the Digital Interactive Media and Software
Tax Credit, or almost $25,000 per job created. The total amount actually comes close
to $2 million, but the state plans on clawing back over half.
Given its relatively high corporate tax rate, long
ago the state adopted a strategy of attracting industry by offsetting this with
breaks like these. In fiscal
year 2016, these reduced corporate income tax liabilities of around $307
million, compared to total potential corporate income tax liabilities of almost
$1.55 billion and actual payments of $145 million. The credit in question
handed out around $9 million in that year.
This strategy mistakenly substitutes government judgment for market discipline. Bureaucrats choose which applicants seem likely to hit their targets and hope for the best. Unfortunately, as in the case of Gameloft, it doesn’t always work out, to taxpayers’ detriment.
A much better approach would scrap almost all
credits combined with lowering marginal rates. This broadening and flattening has
greater potential for economic development as it makes investing in Louisiana by
any company more palatable and likelier to return a profit. Rather than
distorting the market using narrow and imperfect information, this encourages
the wider wisdom and information present in the marketplace to make better
siting and expansion decisions.
Throughout his two years in office, Edwards has
paid some lip service to his idea, but always has sabotaged it by tying tax
increases around its neck as he
equates tax reform with tax increases. His special session call provides more
of the same, as it tries to nudge the Legislature into cutting, if not
dispensing with, certain reduced corporate income tax exceptions in effect but scheduled
to revert to full strength, coupled with corporate income tax changes that he
hopes with increase the total tax revenue taken from company activities.
Raising overall taxes on corporations subverts the
idea of attracting them. In a perverse way this actually might decrease the money
frittered away by awardee failure to meet certain targets, as fewer companies
will wish to come to Louisiana. But it also means fewer would come or expand in
the state, period.
As long as the special session produces at worst revenue
neutral results in regard to corporate income taxation by lowering marginal
rates along with scrapping eligible tax exceptions, that will provide the real
tax reform needed. A revenue-neutral outcome would produce organically more future
tax revenues without increasing marginal rates than under the current
formulation because of the additional economic development this would encourage,
through simplification and attractiveness to a wider range of enterprises.
Any other permutation warrants rejection. Economic,
not government, growth is what policy-makers should target in terms of fiscal reform
during this session.
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