Gov. Bobby Jindal recently announced his plan to eliminate Louisiana’s individual and business income tax, replacing it with a mixture of a higher sales tax, a reduction in business exemptions and other to-be-determined options.
There’s no need to worry, though. The good governor has assured Louisianians that his plan will be implemented in a “revenue neutral manner.”
Opponents of the unfinished plan have been quick to criticize its likely negative aspects. These challengers allege the plan will be a burden on the poor, make it harder for local governments to raise their portion of the sales tax and inspire out-of-state and online shopping for businesses and individuals.
Some of these issues have merit. Others don’t.
At its initial stage, there is no doubt Jindal’s tax source exchange is potentially tougher on the poor than the current tax structure. However, he has mentioned that food, prescription drugs and utilities would be exempt from the sales tax increase — a good first step that allows the consumption of necessities and inspires saving.
The other two primary complaints concern local taxation rates and increased out-of-state purchasing — they are certainly valid.
A recent story by The Advocate revealed that the 2012 fiscal year tax revenue sources were roughly even. Louisiana raked in roughly $2.9 billion from sales tax and another $2.9 billion from individual and business taxes.
In order to make up for the loss of that $2.9 billion in income taxes, the sales tax would have to rise to approximately 12 percent. There’s no doubt in my mind a sales tax this extreme would be detrimental to local governments’ ability to raise their portions of the sales tax for transportation improvements or library support.
And as far as the fear of a rise in out-of-state purchases go, is it really that difficult to imagine that a small business in Lake Charles — a city 30 miles from Texas — would make a $200,000 purchase in Texas instead of in Louisiana to avoid the large, potentially 4 or 5 percent difference in sales tax?
No, of course it isn’t.
These issues are definitely problems for Jindal, but I’m sure his team of pseudo-economic experts can figure their way around them.
But there’s a bigger problem with Jindal’s plan: Revenue neutrality.
LSU students know better than anyone how devastating state budget cuts can be, especially when cuts are forced to come from either higher education or health care each year.
I still blame my decision to opt out of the latter two German courses on those cuts and the resulting decimation of half of the foreign language department.
Consequently, the only German I know came from repeated viewings of “Inglourious Basterds.” Danke, Jindal!
The Jindal administration must alter its plans a bit. First and foremost, an increase in revenue must result from the plan.
Next, the income tax on individuals should be decreased by no more than half of the current 4 percent level on the average resident. There’s no need to keep the business income tax, because Jindal’s main goal with this plan seems to be to attract businesses to the state. Besides, it’s contributed only about $380 million to the $2.9 billion mentioned earlier.
Finally, the sales tax increases could — at most — hit the 10 percent mark to leave room for future increases by local governments. There’s also plenty of room for eliminating some of the specific exemptions for businesses that cost our state a fortune every year.
The lack of a business income tax should help to offset the negative effects of axing those exemptions.
Jindal’s current plan relies on simple conservative ideology: Lower business income tax leads to business growth, which leads to jobs and prosperity.
That’s not a bad thing, but until the governor makes some serious changes to his proposal, it’s not necessarily a good thing, either.
