How Gov. Bobby Jindal would pay for abolishing personal income and corporate taxes is no clearer than when details of his plan emerged last week.
Jindal this week ruled out imposing a state property tax or re-imposing sales taxes on groceries, prescriptions and home utility bills. But he has yet to identify who would pay to offset the lost revenue.
Jindal has indicated that he wants to raise sales taxes and impose taxes on some services that go untaxed today. He has also mentioned that he would consider overturning laws that currently exempt certain purchases from sales taxes.
In all, Jindal would need to raise about $3 billion per year to pay for his tax-elimination plan since he has said he intends to keep overall revenues at current levels.
He has yet to indicate whether he wants the new tax system to raise enough to cover the projected $1.2 billion deficit for 2013.
Unidentified aides confirmed that the governor is considering trying to raise the 36-cent tax on a pack of cigarettes. That would represent a sharp change from his 2011 veto of a renewal of a four-cent tax on cigarettes, a move that was seen as an effort by Jindal to establish himself as an absolutist in opposition to tax hikes of any kind. Tobacco taxes yielded $135 million to Louisiana in 2012.
Conflicting statements by top aides offer further evidence that Jindal’s tax plans are in flux.
Doug Baker, the communications director for the Louisiana Department of Revenue, said Friday night that the Jindal administration was considering eliminating state taxes on oil and gas pumped from the ground.
In a speech on Tuesday, Tim Barfield, executive counsel to the Department of Revenue, contradicted Baker and decried “rumors that we want to eliminate severance taxes.” He added: “At this point, there’s no serious discussion about eliminating severance taxes.” Baker didn’t respond to an email or a phone call to explain the discrepancy.
Speaking to the Louisiana Association of Business and Industry, Barfield also said that Jindal wants to keep exemptions that encourage business investment. But more than once he also said that no exemption is “off the table.”
Jindal needs only 53 votes in the 105-member House, and 20 votes in the 39-member Senate, to eliminate personal income and corporate taxes. But he needs 70 votes (two-thirds of the full membership) in the House and 26 in the Senate to raise existing taxes, impose new taxes or end tax exemptions.
“I don’t know anybody who doesn’t like the idea of not paying income taxes,” said state Sen. Neil Riser, R-Columbia, who chairs the Revenue and Fiscal Affairs Committee that must approve the Jindal tax plan if the Legislature is to vote on it. “But how are we going to pay for it? Anytime you have change, it’s never easy. People want to know how it will affect them.”
They apparently won’t know any time soon. Barfield, who is Jindal’s top tax adviser, told the Louisiana Association of Business and Industry that the Jindal administration won’t present its full plan until shortly before the Legislature convenes on April 8. He also said that much of the planning will take place out of public view.
As Jindal formulates his plans, key state legislators and powerful business groups are warning the governor against raising sales taxes too high or eliminating their sales tax exemptions.
On Thursday, the Revenue Department released a statement saying that higher sales taxes would promote investment and create jobs. The statement said sales taxes are better than income taxes because they are less volatile and more closely track the state’s economy.
Barfield has acknowledged concerns that raising state sales taxes would hit the poor harder than wealthy or middle-class residents; he has said that Jindal wants to take steps to avoid that. That’s why Jindal has said he won’t touch the sales tax exemptions for groceries, prescriptions drugs and home utilities. Those exemptions cost the state about $720 million of the $2.5 billion per year in sales tax breaks, according to the Louisiana Department of Revenue figures.
One fact that Jindal and Barfield haven’t emphasized might undercut their argument: At $1,932 per person in 2010, the last year figures were available, Louisiana’s tax burden was already lower than all but 14 other states.
Jindal has several big potential sources of sales tax revenue he could try to tap. But each one poses a political problem.
Louisiana exempts utilities from paying sales taxes on business-to-business transactions. This cost the state $257 million in 2011, the Department of Revenue reports. Eliminating this benefit would raise business taxes. The Louisiana Association of Business and Industry, whose support would be vital for Jindal, says on its website that one of its major goals is to oppose “any proposal that increases or has the effect of increasing the state or federal tax burden on business.”
Louisiana exempts purchases of gasoline and diesel fuel from state sales taxes because they are already subject to state excise taxes. This exemption cost the state $371 million in 2011, Revenue Department figures show.
The Public Affairs Research Council, a nonpartisan think tank based in Baton Rouge, has released a report that questioned the benefits of ending income taxes. “A repeal of the individual income tax could create a more attractive perception of the state’s tax climate but such a move runs the risk of destabilizing the state’s revenue base and would likely set the stage for increased taxes in the future,” the organization said.
Simply raising the state sales tax presents Jindal with the simplest option. But Louisiana already has the country’s third-highest sales tax rate, at an average of 8.85 percent. The state sales tax is 4 percent and local governments tack on an additional 4.45 percent on average. In New Orleans, the combined sales tax rate is 9 percent.
One news report said Jindal was considering a three-percentage point increase in the sales tax rate, which would raise about $2.25 billion per year and give Louisiana the country’s highest sales tax rate.
Stephen Perry, president and chief executive officer of the New Orleans Convention and Visitors Bureau, said a plan that relies on sales taxes “could seriously jeopardize New Orleans’ largest industry and employer” — tourism.
The statement added: “The purchase of a hotel room in New Orleans is already the highest taxed sale in Louisiana, with an effective blended rate between hotel taxes and occupancy taxes at well over 14 percent. If a large increase to that is made, we would have one of the highest taxed hotel rooms in the country … something that could be very detrimental to our corporate and association meetings business.”
House Speaker Chuck Kleckley, R-Lake Charles, owns and manages a group of convenience stores. He expressed his concern to The Lens about raising sales taxes too high. “I’m in the retail business in a border parish,” said Kleckley. “I’ve cautioned the governor against the sales tax going too high. People in my area will go to Texas.”
Correction: This story originally misstated how many votes are required in the Senate to raise existing taxes, impose new taxes or end tax exemptions.