Incoming! Gov. Bobby Jindal’s plan to repeal state income taxes and raise the sales tax is catching flak from all sides. Jindal’s assurances that his “tax swap” benefits everyone have rung hollow with his critics. Benefits? The critics point to all the groups the plan might harm: from the poor, to the elderly, to small business, to big business … heck, the plan might even graze the sacred industries of tourism and oil and gas production! Unthinkable. Worst of all, critics contend, the numbers in the tax deal just don’t add up.
It appears Jindal’s tax swap idea is so widely unloved that the Legislature might not pass it.
Legislators? Who needs ‘em? In this, his hour of crisis, Jindal has someone to defend him against nattering naysayers: Me. At length.
Let’s start by placing the tax swap controversy in historical and economic context.
Recall that six years ago Jindal ran a campaign against corruption and “out-of-control” spending. He said the state must spend tax dollars more wisely, and reform its ethics laws to improve Louisiana’s dismal reputation. He was elected governor in a landslide.
Granted, reform candidates always promise honest and efficient government. But Jindal also touted the economic benefits of his platform. A clean image would attract new companies to the state, he argued. Savings from spending cuts could underwrite lower taxes on business. That’s why the first action item in Jindal’s original Economic Reform plan was the elimination of specific business taxes in order to achieve a “dynamic economic environment.” Conservatives like Jindal believe that tax cuts beget virtuous cycles: Stimulated businesses grow and employ more workers. Incomes rise, the pie of prosperity expands and everyone gets a piece. That’s the theory, anyway.
Local media swooned for Jindal’s 2007 campaign. The congressman was portrayed as a second chance, a fresh start, a “brave new hope” for Louisiana. In their endorsement, Times-Picayune editors declared: Jindal’s “energy and innovative approach to government are refreshing, as is his instinct for efficiency, business-friendly measures and job creation.” Dragon-slayer imagery adorned T-P opinion pages. Gambit touted Jindal’s “geek appeal” to younger voters and hoped he would “present Louisiana in a whole new light to the rest of the world.”
Not to be outstroked, national media lavished political spa treatments on Jindal. Talk radio’s Rush Limbaugh hailed him as “the next Ronald Reagan.” On MSNBC’s “Hardball” show, Chris Matthews introduced Jindal as “a pioneer of greatness.” Barely six months into his first term as governor, newspapers endorsed Jindal for national office.
Buoyed by acclaim, Jindal pushed through bills to reform government ethics and pension laws. Under interesting circumstances, he repealed the Stelly plan, which — in a reverse of Jindal’s current initiative — restrained sales taxes by raising revenues through a more progressive state income tax. Jindal then led the state through hurricanes and an oil spill disaster. As for the state’s most important issue, coastal reclamation, the Jindal team issued a long-range “fix-it” plan that was extolled by coastal aficionado Bob Marshall, who now writes for the Lens, as well as by Len Bahr, a retired coastal scientist and blogger.
There were some stumbles. Jindal’s ethics and transparency reforms didn’t pan out like the good-government crowd expected. His “bermdoggle” response to the Macondo oil spill was a $360 million waste of money, as scientists had warned it would be. Another example: Early in his first term, Jindal waited until public outcry boiled over before he finally vetoed a fat pay raise for legislators. While explaining that “mistake,” he encouraged Louisianans to stay involved: “This government belongs to you; it is your business.” Perhaps he meant that comment literally, given his penchant for privatizing elements of state education and healthcare.
So if the chief business in Jindal’s Louisiana is business, let’s evaluate his economic record. What’s the bottom line on jobs and growth during his time in office?
Well, since the onset of the Great Recession, total employment in Louisiana has grown despite overall declines in the South and the nation. Inflows of federal disaster aid to Louisiana helped blunt the ill effects of the national slowdown. Even so, the state economy proved surprisingly resilient during the recession, and was also tested by the Macondo oil spill in 2010 and the (overhyped) moratorium on drilling permits which followed. Now, as federal money to Louisiana wanes, the state’s IT, biotech and energy sectors are poised to pick up the slack. Sustained economic growth in Louisiana appears likely throughout the decade.
The skeptic might ask, “That’s fine, but have Jindal’s policies attracted large business ventures to the state?”
The answer is yes. Here’s a partial list of business news items during Jindal’s second term :
1. South African firm Sasol Ltd. will build an $18 billion gas-to-liquid and ethane cracker complex near Lake Charles. Jindal called it the “largest single manufacturing investment in the history of Louisiana” and “one of the most significant economic development wins our state — and our nation — has ever recorded.”
2. Firms from Texas and New Zealand have teamed up to construct a $1.3 billion methanol plant in St. James Parish. It will be the largest of its kind in North America. Also, Vancouver-based Methanex has begun construction on a $550 million methanol facility in St. Martin Parish, and Utah’s Huntsman Corp. will spend $78 million to expand its chemical plant in Geismar.
3. A biofuels startup out of Colorado purchased land near Alexandria so it can build a $500 million renewable fuels plant.
4. Belgian firm Katoen Natie announced it will build a $150 million petrochemical storage and processing facility in Baton Rouge. IBM plans to employ 800 people at a new technology center in Baton Rouge, as well.
By the way, those aren’t business news highlights from the past four years. Those are highlights from the past four months. To be sure, generous incentives helped to land these projects, but economic teasers are common currency nowadays. To say this impressive flurry of business relocations and expansions had nothing to do with Jindal’s policies or leadership would be unfair.
A New Orleanian might sniff: “All that’s fine. But I live in the Crescent City, not Geismar. What’s the outlook for business and jobs where I live?”
Well, hospitals are being built and big box retail stores are on the way. The Michoud Assembly Facility will be reconfigured to manufacture liquefied natural gas tanks, and hopefully the Avondale shipyard will be similarly retrofitted. The hospitality industry enjoyed strong tourism numbers last year.
As for New Orleans’ business image, I’ll quote from a recent op-ed by Greater New Orleans Inc. CEO Michael Hecht (my emphasis):
In economic development, we are at the highest point, in every economic ranking, in our history. New Orleans was ranked the No. 1 most improved metro area in the United States [The Wall Street Journal] … With a sustained increase in job creation, the greater New Orleans area has been lauded as the No. 1 growing metro area for employment [Brookings Institution] and the No. 1 metro area for IT job growth in the United States [Forbes].
During Super Bowl week, Hecht stressed the importance of telling the story of our city’s tremendous economic turnaround. He said we needed to show the world that the federal and private investments in New Orleans since Katrina are paying off. Civic marketing is necessary, in Hecht’s view, to attract more residents. We’ll need them to expand the city’s tax base to pay for flood protection upkeep and a better water and sewerage system.
So, are people receiving the message and relocating to New Orleans and Louisiana? Is the tax base expanding? Yes!
Last year New Orleans was ranked the fastest growing city in the country. Team Jindal will gladly tell you that “Louisiana experienced its fifth consecutive year of net population in-migration, with more people moving to the state than leaving Louisiana. The in-migration gains are largely the result of the state’s economic performance during that time period.”
In short, everyone loved candidate Jindal when he promised to change perceptions of Louisiana and energize its economy. Despite a near-depression, hurricanes and an oil spill disaster, business is taking off throughout the state. Our national ranking has improved, and there’s a net population inflow — “brain gain” instead of “brain drain.”
But with the business outlook the brightest it’s been in decades, polls show Jindal’s approval rating at a low ebb. And now nearly everyone “hates” his tax plan. Some thanks that is! Shouldn’t former supporters of Jindal’s pro-business platform consider the possibility that the governor knows what he’s doing? What more must he do to prove that Jindal-nomics is working? And if it is working, why are they so unthrilled by his tax swap idea?
With those questions in mind, let’s analyze the criticisms of Jindal’s tax overhaul proposal.
Critics say the tax plan is regressive and hurts the poor.
By definition, sales taxes on consumables are regressive. That’s an economic term, not a political judgment. Anyone who has followed modern conservatism in recent decades understands the movement’s love for “lower, fairer and flatter” tax rates. Those are the regressive ones, the ones that hit the poor harder than the rich. Conservatives view a sales tax on consumption as a relatively “good” type of tax because it encourages savings and investment — at least among those who have the wherewithal to save and invest. Conversely, they think progressive income tax rates, which scale up by income level, stifle the incentive to work and innovate.
Jindal’s defenders hasten to point out that the governor has watered down the regressiveness of his tax plan by building in rebates for low-income earners — evidence that he realizes the poor are already getting clocked by the current system. What more do you want?
Critics say the tax plan raises state sales taxes by 47 percent, er, make that 56 percent.
Whoop de freakin’ do. While the percentage increase might be a scary double-digit number, the plan amounts to only 2.25 new cents per dollar in sales tax. Aren’t we missing the big story here? Jindal’s tax plan is still much less than the the three cent sales tax increase that many originally expected him to propose.
The economy is already doing well, why not just tinker around the edges?
Editorials say the plan is too “drastic.” Pundits wonder why Jindal would attempt to fix something that’s already working. Implicit in these criticisms is the acknowledgement that Jindal-nomics is already kicking butt. But isn’t it weak to worry about Jindal messing up his own success? Instead of those timid concerns, the right question to ask is this: “Why do the critics want to prevent Jindal from doing MORE of a good thing?” They elected a dragonslayer and now want to tie his hand behind his back? Let him swing his sword!
The Jindal administration says businesses will bear the “burden” of the swap plan that will stimulate business.
Admittedly, this talking point blows chunks. Team Jindal should “file” it in the dumpster. They should say businesses that complain are just angling for a better deal, and don’t see the larger picture: a more vibrant economy will be a windfall to everyone.
Defenders of loopholes raise complaints.
Some, like Big Oil and the burgeoning movie industry, would defend tax exemptions and costly incentives that Jindal’s plan seeks to discontinue. Louisiana State University-Shreveport political science professor Jeffrey Sadow explains the conundrum:
This will be the greatest challenge the Jindal Administration faces, the multitude of different rank-orderings of preferences people have in their economic lives, which threatens to stop this kind of change that requires supermajority support. Some businessman might be perfectly happy that 199 exemptions are going away, but he benefits from one in particular also on the chopping block that he feels he can’t operate without.
The answer to this problem is for Jindal to appeal to the common good. Those who would endanger statewide tax reform by protecting a pet boondoggle are being shortsighted. Where’s the sense of economic patriotism in the “new” Louisiana?
Critics say Jindal should heed his bad poll numbers and stand down.
Oh, please. We elected a visionary; give him the freedom to lead. Fickle public sentiment should not steer the elected. If so, we should just remove the politicians and decide everything by Internet referendum.
Such criticism is usually disingenuous, anyway, given that it issues most volubly from the lips of people who weren’t in favor of Jindal’s work when he had sky-high approval ratings. It’s just partisan politics, like the razzing Jindal got for not visiting the Bayou Corne sinkhole. When he finally did, critics claimed it was just a photo-op — too little, too late.
The fiscal hawks strongly object … sort of.
You gotta love the trouble-making conservatives who posture to Jindal’s right. They claim Jindal’s use of one-time money to balance budgets is irresponsible. But when you ask them to specify cuts to truly bring the budget in line, they offer vague, unrealistic or incomplete suggestions. Or they demonstrate their “principles” by offering legislation that has little chance of passage. When you pierce their objections to Jindal’s tax plan, you find they are mostly “cosmetic” or “merely technical.”
Man up, hawks. It’s easy to never bend on “principles” that haven’t been tested. That sort of ideological gimmickry is no better than the smoke-and-mirrors budget tricks for which they blame Jindal. If the hawks have a bolder conservatism to enact, they should get specific and realistic. Until then, perhaps they should view Jindal’s tax plan as an incremental step toward their right-wing utopia.
Critics fault Jindal because they believe he’s preparing to run for president.
We knew Jindal was ambitious when he nearly won the governor’s seat in 2003. We knew it when he bided time as Kenner’s congressman, waiting for another crack at his “dream job.” After he took office in 2008, there was immediate speculation about him being a candidate for vice president. But Jindal surprised pundits when it was revealed he turned down the opportunity to be vetted for the gig. Now everyone’s certain that Jindal will run for the White House in 2016. We should note, though, that in 2008 he said, “I don’t have any intent of running for any other office. I’d like to ideally go back to the private sector.” Jindal’s young and more patient than we think; perhaps he’ll surprise us again.
For the sake of argument, let’s assume he is set on winning the presidency in 2016, and is using his chairmanship of the Republican Governors Association to raise his national profile. The complaint from his constituents is that he’s not properly focused on his home state. But it’s not as if his presidential plans can’t be aligned with progress in Louisiana. If anything, his ambitions seem to have forced Jindal to work even harder on both fronts. After all, he can’t allow the state to crater in 2015 and expect to be a successful presidential candidate.
In his 2007 campaign, Jindal explicitly promised to be the “state’s top salesperson” and travel around the nation to promote Louisiana’s story (see page 7 here). Surely the improved national perceptions of the state have something to do with his sales trips. Plus, national attention to Jindal’s political future expands the audience willing to listen to his sales pitch about the Louisiana “miracle.” Isn’t that a good thing? And, after all, isn’t the first rule of sales to sell yourself?
Further, if Jindal ruled out a presidential run tomorrow, there’s no evidence he would suddenly become the sensible moderate many assumed he was. He wouldn’t dial back his transformational philosophy. Many Democrats don’t like Jindal’s policies anyway, so it’s strange to hear them grouse about his ambitions distracting him from the state. The disenchanted editorialists, on the other hand, play a similar double-game when they complain about Jindal’s “drastic” tax proposal coupled with his absence in Baton Rouge. Call this the “Jindal’s too bold … and such small portions!” criticism.
Critics say the tax swap plan doesn’t add up and uses one-time money and other gimmickry.
Of course it doesn’t add up! Jindal can’t say this, but his plan was not supposed to balance at the outset. Sure, he pitched the plan as a “revenue neutral” swap that simplifies the tax system. But let’s be frank: He’s not just juggling tax policies for fun. The centerpiece of the “swap” is the income tax repeal, which is an attempt at supply-side stimulus. This became obvious when Team Jindal used talking points crafted by Art Laffer, the founder of supply-side economics.
In short, supply-siders believe that tax cuts beget “dynamic” stimulus benefits that standard “static” econometric models never fully capture. Income tax cuts are extraordinarily “dynamic,” they believe, because lower taxes increase the rewards of work, investment and entrepreneurial risk-taking. Indeed, when the conservative Pelican Institute ran Jindal’s plan through their “dynamic” economic model, it predicted nearly 12,000 new jobs by 2017.
Inconveniently for supply-siders, study after study has debunked Laffer’s theories about dynamic scoring. Even the basic correlation between tax cuts and economic growth, endlessly touted by conservatives as an iron law of economics, is terribly suspect.
But none of that should matter to us! Louisianans embrace faith-based decisions — why should tax policy be any different? In overwhelming fashion, we’ve elected some of the most conservative Republicans in Congress. There’s a Republican majority in the Legislature. Isn’t this what Louisiana wanted? Why should the citizenry suddenly blanche at Jindal’s venture into supply-side policy? It’s like they eagerly signed up for experimental surgery and mid-way through they feel discomfort and have second thoughts.
The budget gimmickry Jindal is using to “balance” his tax plan is necessary to make it politically palatable. There’s some smoke and mirrors, initially, but after a few years the supply-side “dynamism” kicks in and all the revenue numbers will improve. You have Laffer’s word on it. When the thick-headed critics attack the plan’s math and inspect the internals and demand that it balance, Jindal has no choice but to adjust the regressive side of the equation. That’s why the proposed state sales tax rate went from 5.88% to 6.25% on Thursday. (Again, the income tax reform is non-negotiable.) A supply-sider might say the pointy-head critics are letting static and short-term assumptions scuttle Jindal’s pro-growth plan. If we get hung up on fuzzy details now, we may miss out on a brighter, clearer economic future.
Simply put, Jindal’s economic record is strong, and he believes his plan will result in broad-based prosperity. We elected him to make big changes. So this isn’t the time to nit-pick our “Bayou Reagan.” It’s the time to see the dynamic possibilities of his optimistic long-range vision. Hasn’t he earned his chance to see his program through, without math-heads and short-sighted worry-warts ruining it for him?
Plus, there’s a safety net no one’s talked about. Even if Jindal’s tax swap doesn’t pan out as planned, in a technical “cause and effect” sense, Jindal can still brag about his plan to like-minded business owners around the country. He can ignore the state budget numbers and explain that it has a great think-tank pedigree. (The Cato Institute likes the swap, and Americans for Tax Reform president Grover Norquist said the swap could be the “the boldest, most pro-growth state tax reform in U.S. history.”)
Whatever the true merits or budgetary results of the plan, if enacted it would empower Louisiana’s “Salesman in Chief” with an even stronger pitch to the nation’s business community. They might fall under his ether and relocate here anyway, further stimulating the economy and keeping the good-times rolling.
No one will know the difference. The think tanks will point to tax cuts in Louisiana followed by growth (nevermind the real cause), and Jindal will be a supply-side hero forevermore. Sure it’s a bit of a confidence game at first, but when business flourishes and the pie expands, all the current critics will once again change their minds. It would work like magic. Voodoo economics may finally have found its high priest.