Caution urged on taxes

LSU economist, organizations leery about Jindal plan

Gov. Bobby Jindal’s proposal to eliminate state income and corporate taxes and shift the funding of Louisiana government toward higher sales taxes is a “huge change” that needs to be approached “very, very slowly,” said an LSU economics professor who closely monitors tax revenue.

Meanwhile, representatives from organizations representing local governments and retailers — groups that would feel major effects from higher sales taxes — say they are waiting to see the details of the plan before taking any public stance on the issue.

“There are certain things you can say from the beginning,” said Jim Richardson, an LSU professor and member of the Revenue Estimating Conference, which decides how much state government can spend. “There will be a redistribution of who pays for state government. Unless there are some real different clauses built into the law, it will change the burden from higher-income to middle- or lower-income.”

Last week, Jindal floated a proposal in advance of the April 8 legislative session that would wipe out the state’s personal income and corporate taxes. While the exact fine details have not been discussed, one of the ways of making up for the lost revenue would be to raise state sales taxes. Jindal said income taxes would be eliminated in a “revenue neutral manner.”

Jindal has argued that lower state income taxes have more of an influence in recruiting industry and will make the state more attractive to companies that will come into Louisiana and create jobs.

Richardson said that statement is “subject to analysis” and has not been proven absolutely correct.

For fiscal 2012, which ended June 30, the state collected nearly $2.5 billion in personal income and $374 million in corporate franchise and income taxes. Sales tax collections were about $2.6 billion, and vehicle sales taxes were nearly $323 million.

So to make up for the loss of nearly $2.9 billion, the state has to do something big, Richardson said. And that number could be driven up if the state keeps some tax incentives, like the film tax credit, which is about $200 million annually and the credit for inventory taxes paid to local governments, which is about $350 million a year.

“So that’s about almost another $600 million in new dollars you have to make up,” he said.

Jessica Elliott, director of government affairs for the Louisiana Retailers Association, which represents more than 4,000 storefronts, said the two biggest concerns from merchants is that higher state sales taxes would hurt stores along the state border and increase sales to online stores.

According to figures Elliott provided that were furnished by the National Conference of State Legislatures, last fiscal year the state missed out on more than $808 million in sales taxes because of purchases through online retailers that don’t have a physical presence in Louisiana. That includes such popular online stores as Amazon.com and Overstock.com.

“Consumers are supposed to remit the taxes for things they purchase online on their state income tax return,” Elliott said. “But how are you going to pay a use tax, if there’s no state income tax?”

Elliott said if state and local sales taxes rise to the point where purchases are taxed at 12.5 percent, that could hurt border retailers and stores who cater to out-of-state visitors. Nearly all of neighboring Mississippi has a state and local sales tax burden of 7 percent.

Elliott said the LRA hasn’t reached out to all its members, but they are waiting to see the details of the tax plan.

“This is a huge issue and we want to have our side heard,” she said.

Tom Ed McHugh, executive director of the Louisiana Municipal Association, which represents state governments, also said his organization is holding off taking a public stance on Jindal’s proposal. McHugh, a former Baton Rouge mayor, said there are obviously some potential problems with an increase in state sales taxes, such as the fact city and parish governments could have their hands tied if they wanted to generate more local income for schools, transportation or economic development.

“We don’t know enough of the details yet,” McHugh said. “But we are paying attention to everything we are hearing.”

Former state Rep. Vic Stelly, of Lake Charles, who authored a plan approved by voters in 2002 that eliminated sales taxes on groceries and residential utilities in exchange for increased income taxes on middle- and upper-income earners, said eliminating the income tax is a complex proposal. He said there always is a trade-off.

In Lake Charles, he said, sales taxes already stand at 9 percent.

“This is going to take a lot of adding and subtracting to make this work. It sounds good,” Stelly said. “But there’s no free lunch.”

Michelle Millhollon
contributed to this report.

Comments

1) Comment by ScotB - 15/01/2013

If Governor Jindal does this, he needs to make sure that online retailers are required to collect the tax, too. Brick and mortar retailers provide jobs, pay license fees, occupational taxes, property taxes, and donate to charities & civic organizations. Online retailers do none of that! Our retailers right here in Louisiana employ a lot of people, and they do not need to be put at a further competitive disadvantage to online retailers.

2) Comment by rnelson - 15/01/2013

Someone please explain to me--they gave everyone with kids in private schools a $5000.00 state tax deduction to smooth the way for giving tax money for the school voucher program --now with this plan that's gone. I'd like my tax money back please!!! Neat hat trick Jindal!!!

3) Comment by guardianangel - 15/01/2013

The middle and lower income people are barely making it now. I understand the thought that becoming more attractive to big business would bring in more jobs, but at what cost?

4) Comment by Crawdaddy - 15/01/2013

So, given Jindal's undying penchant for screwing over state workers (layoffs, cutbacks, freezes, tenure,retirement, heath plans, etc.), I started thinking what negative this "reform" would be for state workers. Oh yeah -- state retirees don't currently pay state income tax. But they sure will pay more for stuff under this plan.

5) Comment by Scrooge - 15/01/2013

"'all else being equal"' uh oh

6) Comment by Mygulfbleedsforu - 15/01/2013

I believe the conventional wisdom is... all else being equal, the one with the better tax breaks wins. There is no doubt in my mind that over time, the states with low tax revenues become very unattractive. And what it will take to turn that around later will be a huge burden on what's left of the taxpayers.

7) Comment by Scrooge - 15/01/2013

Aren't taxes just one of the factors that would entice a responsible business to locate somewhere? Wouldn't considerations of educational systems, the literacy and affluence of its citizens, crime rates, etc. etc. be as integral in the decision?

8) Comment by RUSerious - 15/01/2013

I'd love a break in my income taxes but this is not liekly to be the way to get there. I understand the concept of a consumption tax just not sure it is doable given our demographics. One idea which no one seems to want to look at is tweaking property tax. Seeing it is so holy keep the 75k but start it at 10,001. Gets more skin in the game. is it regressive no, but I agree it does hit low and middle income earners. It removes the issues of hurting retailers and homeownership may go down but rentals would go up.

9) Comment by Pakistani - 15/01/2013

I want to see Pakistani boy's birth certificate. He is a Jihadist.

10) Comment by Mygulfbleedsforu - 15/01/2013

"Forgive me for noting that conservatives seem to believe that the rich will work harder if we give them more, and the poor will work harder if we give them less." E.J. Dionne, Jr.

11) Comment by NewsReader - 15/01/2013

" This may be Jindal's worst idea yet. " - don't count on it being his last either. He tries to outdo himself in poorly thought out ideas all the time. In a state where our sales tax already is one of the highest in the nation and particularly when one adds in local Parish / City sales tax, and a state that consistently ranks at the bottom end of personal income per capita, this seems like one of the biggest boneheaded concepts in a while.

12) Comment by DMJ - 15/01/2013

"it will change the burden from higher-income to middle- or lower-income." Shocker. That's basically the whole point of Republicanism these days isn't it? I have a question.... you know how Republicans always say that taxes are disincentives? Wouldn't higher sales taxes and property taxes be disincentives to spending/buying and owning a home? Seriously. And excuse me, but you can disincentivize income. No one is going to say, "Well, if I can't be 5% wealthier, I'm just not going to try anymore." It's absurd. Income taxes are 1/2 of our state budget. This may be Jindal's worst idea yet.

13) Comment by BRmoderate - 15/01/2013

In the 2016 Republican Presidential Primary Debate, Bobby Jindal is heard bragging about eliminating income taxes in Louisiana. He doesn't care about the effects, he just wants the talking point.

14) Comment by swinham - 15/01/2013

."Because something is happening here, but you don't know what it is..."[Bob Dylan] do you, Mr. Phil? Neither do I, but it has to be more than what we are being leaked.

15) Comment by phil - 15/01/2013

I agree this would need to be looked at closely and also look at states that already have no income tax and see how they replace it and how much the sales taxes are in those states. If property taxes are raised there is always a chance industry will want to move here for some reasons but then they will not want to move here if property taxes are too high for both industry and personal property. Maybe we will find that there is just to much tax money wasted in LA and that is the real problem Then there is the option of just having a "being alive" tax. It would work similar to the Obama healthcare tax where if you are alive you have to pay a tax, with one exception. Everyone would have to pay.

16) Comment by swinham - 15/01/2013

If corporate and personal income taxes were eliminated and replaced entirely with sales tax, the state sales tax would have to increase by at least a nickel and probably more since each 1 cent increase yeilds progressively less in revenue because of decreased consumption at each increment. This "proposal" is so ridiculous for so many reasons it is hard to even discuss it seriously - uh, oh, that means it could actually happen. On the other hand, this whole thing is probably a smokescreen for some real plan we are all too stupid to comprehend.

17) Comment by bettergovt - 15/01/2013

One piece of advice to the LRA. If the administrations is going at this like they normally do, the "details" are currently in negotiation behind the scenes. Once you get the "details" of what the bill is actually going to look like, it will be too late. That's how it works. You will not see all of the details until the bill is already passed.

18) Comment by markedwardmarchiafava - 15/01/2013

Unless there's radical cuts in spending, it's all a shell and pea game, the citizen being the ultimate victim.