Gov. Bobby Jindal says everyone wins under his plan to eliminate personal income and corporate taxes in Louisiana and jack up the state’s annual take from sales taxes.
He also insists the tax revamp will be “revenue-neutral,” meaning the state’s annual tax haul will neither rise nor fall.
“We have proposed a reform that will help families in every income level, that will cut taxes for families at every level, including retirees and the low-income,” Jindal said at the South Central Industrial Association in Houma on Tuesday, the start of a statewide round of barnstorming to sell the plan.
But like the IQ scores in Garrison Keillor’s Lake Wobegon — where “all the children are above average” — Jindal’s claims are mathematically impossible.
By definition, a plan that is revenue neutral creates winners and losers, say two of the state’s leading economists.
“If you do the accounting correctly, not everyone can get a tax cut,” said Steven Sheffrin, a professor of economics at Tulane. “If you’re trying to raise the same amount of money as today, something has to give. Someone somewhere will have to pay more money. How can people in every income tax bracket get a tax cut? It doesn’t compute.”
The truth appears to be that businesses would pay more under the plan, as Tim Barfield, Jindal’s point man on taxes, acknowledged Monday. “It’s very clear that business will be taking more of this burden,” Barfield, executive counsel to the Revenue Department, told NOLA.com/The Times-Picayune.
On Thursday, the Public Affairs Research Council, a Baton Rouge-based think tank, called for more information. “The losers in the tax swap deal need to be identified and the impact on them needs to be explained more fully,” wrote PAR. “Overall, there will be a shift of the tax burden from individuals to businesses, but that burden will not be evenly shared by all businesses.”
The administration has released a list of which industries would lose their sales-tax exemptions under his plan, as well as which activities would become subject to the 5.88 percent state sales tax that Jindal wants to impose (up from 4 percent today).
But the administration has provided that information only in a handout to state legislators that was made available to The Lens. The governor’s website has one fact sheet showing how all families would win under his tax plan. Another fact sheet shows a tax cut for a teacher earning $45,000 per year and a plant worker making $60,000. But the governor’s website does not show which businesses would lose exemptions or which would be hit with a sales tax for the first time.
Similarly, the Louisiana Department of Revenue provides a link to how people can apply for a tax refund but has nothing on the losers under the Jindal plan.
“We’re only seeing one side of the story,” said Jim Richardson, an LSU economics professor who holds one of four seats on the state Revenue Estimating Conference that determines how much money will be available for the state to spend. “Higher sales taxes have to come from someone. It has to come from someone’s family from purchases, or from a business owner’s family or from a worker’s family or from a hotel, etc.
“At this point, it’s hard to identify who would pay the taxes. It may be that businesses would pass along the higher sales taxes. That would mean us. But it’s not clear that businesses can pass along the taxes.”
Richardson also pointed out that the Jindal administration’s charts on winners don’t appear to include the impact of the proposed $1.05 per pack increase in cigarette taxes, from 36 cents per pack to $1.41.
“The cigarette tax has regressivity built into it,” Richardson said, meaning that the increase will hit low-income smokers hardest.
A request for more information from Jindal’s press secretaries went unanswered Thursday.
If businesses are indeed the losers under Jindal’s plan, that would be because administration officials are listening to concerns expressed in recent days that the shift to sales taxes threatens to take a disproportionate swipe at the poor. It will also hit retired government workers because they don’t pay income taxes today and therefore will reap no benefit from the tax being replaced with higher sales taxes.
More than 200 ministers on Monday slammed Jindal’s overall plan because they said it would be regressive.
Jindal has said repeatedly in recent days — including in an op-ed published Thursday by NOLA.com/The Times-Picayune — that they are wrong. He claims his plan includes a program to offset higher taxes on the poor and another one for retired government workers. But the administration has yet to release the details of exactly how they would work.
Many political insiders believe that Jindal’s primary goal in announcing his intention to eliminate state income and corporate taxes is the approving pats on the head he can expect in national Republican circles as he pursues his presidential dream. He has already been praised by Grover Norquist, perhaps the country’s leading anti-tax advocate.
A column on RealClearPolitics, another popular conservative website, has also praised him.
“If he succeeds, I imagine he will vault himself to the top tier of Republicans looking to replace Obama,” wrote Daniel Mitchell, a senior fellow at The Cato Institute, a libertarian think tank in Washington, D.C.
But will conservatives around the country continue to throw bouquets his way once they learn that he wants to raise taxes on business to pay for his plan?
Some of the bloom may already be off the rose. Over the weekend, Jindal tied for last place, with failed vice presidential candidate Sarah Palin, in a presidential straw poll at the Conservative Political Action Conference outside of Washington.
The visit to Houma was the first part of what aides say will be a statewide tour by Jindal. The governor also plans a television advertising campaign financed by wealthy donors.
Jindal pitched his plan last week to the House Ways and Means Committee, which gets first crack at it on the legislative assembly line. If it passes Ways and Means – which seems likely – it will then go to the 105-member House, where approval would require 70 votes.
If it passes the House, a steep challenge, Jindal will need 26 votes in the 39-member Senate for the House measure to become law.
The legislative session begins on April 8.
To date legislators have not embraced Jindal’s plan, in part, they say, because Jindal has failed to provide information they need.
“Somebody in the long run will pay more in sales taxes than income taxes,” said state Rep. Frank Hoffmann, R-West Monroe, a Ways and Means member. “Some will pay less. It has to balance out.”
State Rep. Major Thibaut, D-New Roads, also a Ways and Means member, said it’s too early to know whether he will support the governor. “At this point, I can’t tell you who the winners and losers are,” he said.
Said state Rep. Chris Broadwater, R-Hammond, a member of Ways and Means: “We want to see the numbers so we’ll have a comfort level on how it will impact businesses and people in every economic strata. We want to make sure that two plus two equals four. We need economists we respect to punch the numbers.”
