Phrases like “big mistake” and “radical change” don’t always come easily to economists, so it is striking when three prominent economists object so strongly to the idea of eliminating the personal income tax in Louisiana.
“We question the economic and fiscal wisdom of this choice,” wrote Jim Richardson of LSU, Tim Ryan of the University of New Orleans and Steven Sheffrin of Tulane University.
Their op-ed essay in The Times-Picayune ought to be required reading for legislators. Unfortunately, for national political reasons, we doubt it will make much of an impression on Gov. Bobby Jindal, who promotes the idea of eliminating the income tax, both corporate and personal.
For the moment, the House Ways and Means Committee has declined to hear the repeal bills. We hope that situation holds, because as the economists noted, there is not a lot of evidence that the repeal of income taxes will help the economy.
“The rationale for elimination of the personal income tax is that it will create jobs. This claim is simply not supported by meaningful studies,” the economists said. “No state in the last 50 years has ever eliminated an income tax except Alaska, a state with mineral revenues to replace it. Some states have no personal income taxes such as Texas and Florida, but they have never had an income tax.”
If legislators want to think about politics, they should contemplate the ways that Texas and Florida tax both individuals and businesses: “Both Texas and Florida have much higher property tax burdens than Louisiana, and both states have some form of corporate taxes as well,” the economists said. “Both states have higher overall tax burdens than Louisiana.”
That last point is important. Louisiana has a very low state and local tax burden now. Give away the income tax, and there will still be a demand for services. That means business taxes at the state level, and property taxes at the local level, will eventually go higher to pay for government. That is as inevitable as the tide.
That doesn’t mean that the tax code cannot be improved, as the economists point to exemptions and credits in the tax code that should be addressed by the governor and Legislature.
What is lacking is leadership.
The economists are not shy about pointing out the ways in which the state does business poorly. “Louisiana has a structural deficit right now. Our expenditures are greater than our receipts, and we make up the difference by using one-time money and contingency funds,” the economists said. “Eliminating the income tax will worsen the structural deficit.”
They are unsparingly critical of the notion of phasing out the income tax over a period of years. That is, obviously, a political dodge to push hard decisions on taxes and spending to the next set of officeholders, not to mention our children and grandchildren.
“Phasing out a tax that supports almost 25 percent of the state budget without a note about what public services should be eliminated or what other taxes should be raised is simply not good public policy,” the economists said. “It is irresponsible. It is a gamble where we bet the economic well-being of the state.”
Implicit in the economists’ argument is the notion that the state cannot simply emulate Texas. In fact, one of the best arguments against the repeal movement is that most states have a tax structure similar, if not exactly the same, as Louisiana’s.
Radical? Yes. A big mistake? Certainly.