After Governor Bobby Jindal abandoned his controversial tax swap plan in the opening of the 2013 Louisiana legislative session, the session is moving ahead while taking all talks of state tax reform off the table for the time being.
Proposed back in March, Jindal originally unveiled his plan to the House Ways and Means Committee and the Senate Revenue and Fiscal Affairs Committee as a $3.64 billion tax swap which would have eliminated the state income, corporate and corporate franchise taxes while increasing the state sales tax from 4 percent to 5.88 percent, a 47 percent increase as reported by the Times-Picayune. Later the administration revealed that the state sales tax would jump to 6.25 percent, not 5.88 percent as it had initially claimed.
“Louisiana is competing with states like Texas, Florida and Tennessee, which have no state income tax, and we lose a lot of college graduates every year, who graduate from Louisiana institutions, to go to Texas to get a job because that’s where the greatest opportunities are,” said Economics professor Dr. Jay Johnson. “There’s a lot of opportunity over there and part of it is a tax-friendly and business-friendly environment.”
The governor’s proposal would have also raised the cigarette tax from 36 cents per pack to $1.41 a pack and was slated to amount in a $3.6 billion gap in revenue, demanding the funds be compensated by other taxable areas.
Being immediately shot down at the time of its unveiling, the plan was called out as being too regressive in nature, with House Democrats saying it would inadvertently hurt lower-income Louisianians. Pitched by Jindal as a pro-growth economic move, the elimination of the progressive income tax was designed to shift the tax burden from individuals to businesses.
However, students earning low wages would have been negatively impacted but later, once graduated, benefitted from the shift.
“College students, who are maybe working part time or just beginning their career with lower income are going to be a little bit adversely affected by that because they’re going to end up paying a little bit higher percentage of their income in taxes, in the form of a sales tax, that they wouldn’t have to pay in the form of an income tax,” said Johnson. “It would be, at least in the short-run, detrimental but in the long run, if it really did create more job opportunities, than that would be better because then your incomes would go up and you wouldn’t worry about it so much.”
Weeks prior to the legislative session, Jindal’s plan was slammed by organizations, businesses and clerics. House Democrats and the administration pushed back at each other’s claims over the bill’s numbers.
“I think he finally realized that this was never going to happen,” said History and Political Science said History and Political Science professor Dr. Ronald Traylor. “The effect of all of these lobbying groups and all these influential businessmen and the impact on the poor, all of these things, it certainly was not going to get done. However, the way he [scrapped the plan] I thought spoke volumes about his ability to accept defeat gracefully.”
Lacking the political support and being criticized by conservatives for raising sales taxes to a dramatic amount, the governor scrapped his tax swap and asked legislators to act to eliminate unnecessary tax burdens themselves.
“I think that the administration put the positive spin on it and used the positive numbers,” said Traylor. “The opposition examined it from a different direction and came up with a different set of numbers. Which set of numbers is right? I don’t have a clue.”
If passed, the tax package would have set total sales tax percentages at approximately 11 percent when local and state sales taxes overlapped one another. The state’s sales taxes would have jumped to the highest in the country.
“The typical college student has to count his pennies and it doesn’t matter if he’s getting TOPS or if he’s getting a Pell Grant or if he’s a veteran,” said Traylor. “I remember how difficult it was to go to school with limited resources. I suspect that a lot of college students are still living off Ramen noodles. And yes, increasing that sales tax is going to put the cost of Ramen noodles up.”
But hiking the state sales tax was not the only option the Jindal administration was left with. Less regressive taxes, such as property taxes, would act as a more beneficial alternative because it is less regressive and would take in more revenue according to Johnson.
Talk amongst legislators of phasing out the income tax over a 10-year period floated around Baton Rouge as discussions of the elimination of personal income taxes died.
Even with debate over eliminating or phasing out the state income tax ending for this legislative session, the need for a simpler tax code is still being called upon.
“Simpler tax systems are lower administration costs, they are easier to comprehend, and generally more efficient,” said Johnson. “There is no doubt about that.”
The legislative session is scheduled to adjourn June 6.