Opinion
 

Louisiana bucks the trend: postmortem of a tax revolution that fizzled

Governor Bobby Jindal

Gage Skidmore/flickr

Governor Bobby Jindal

“We’ve got to present thoughtful policy solutions to the American people — not just bumper stickers, not just 30-second solutions.” — Gov. Bobby Jindal, speaking at a May 10 fundraiser in  Manchester, New Hampshire.

Jindal didn’t awaken one night last year and shout, “Eureka! What this state needs is an income tax cut!” Or if he did, it was a dream shared by conservative Republicans in several other states, among them Nebraska, Kansas, Ohio, Missouri, Indiana, Oklahoma and North Carolina.

And so far little of his tax-cut dream is coming true, given widespread legislative resistance.

I’ve focused on Jindal’s “tax swap” proposal, and its defeat, because I think this is a revealing political moment. In my last four columns on the topic I’ve made at least two-and-a-half worthwhile points:

1) Jindal’s “tax swap” was really about one overriding priority: enacting a regressive income tax repeal.

2) Jindal promoted the income tax repeal to curry favor with national Republican tax cut zealots like Art Laffer and GOP thought cops such as Grover Norquist.

2½) After he encouraged states to become laboratories of innovative policy ideas, Jindal tried to push a stale national GOP tax agenda through an unwilling state Legislature.

Jindal’s call for states to “lead the way” with fresh policy prescriptions followed the Mitt Romney debacle and President Obama’s re-election. Apparently the leadership and experimentation Jindal had in mind involved states coalescing around tax cut initiatives touted by the American Legislative Exchange Council (ALEC). Nothing blazes a trail like cookie-cutter conservative policy.

For those who aren’t aware, ALEC is an officially “nonpartisan” group that’s chock full of Republican members. It’s also a “nonprofit” deeply concerned about corporate profits. They claim they don’t lobby for anything, but they hold meetings at which corporate interests and state legislators mind-meld and fashion model legislation to cut taxes, regulations and workers rights. Jindal was a featured speaker when ALEC held its annual meeting in New Orleans in 2011, where he collected their Thomas Jefferson Freedom Award. (Texas Governor Rick Perry won the prize the year before.) BP was the top financier of the conference, along with dozens of other large corporations such as Walmart, ExxonMobil and Koch Industries.

These days, ALEC gets its ideas about taxes from Laffer, the supply-side economics guru who’s made a career out of hawking the magic tax-cut elixir. Laffer believes tax cuts are so stimulative they actually raise revenues. He has even described the tax cut cure-all as a “free lunch,” normally a no-no in economics, perhaps especially conservative economics. He recommends investing in companies located in states with low taxes, because he thinks higher taxes doom the economy. Left unexplained is how the Great Recession took place when total tax bills were at 60-year lows.

In early 2007, ahead of the global financial crash and near-Depression, Laffer had this advice to offer: “I’ve never seen the U.S. stock market so well positioned as it is now.” To be fair, towards the end of 2007, Laffer did publish a book foreseeing doom — if taxes were raised.

I don’t believe this year’s widespread push for state income tax cuts was a coincidence. It was a national effort coordinated by the likes of ALEC and Laffer. The political intent was to help Republicans regain political momentum in advance of 2014 and 2016. (Note the timing of this coordinated push: at the same point in Obama’s second term as the Tea Party eruption in his first. You can bet a similar conservative “groundswell” will arise in early 2017, if another Democrat wins the White House.)

The ALEC-Laffer tax cut crusade had its cheerleaders. The Wall Street Journal declared this obviously-choreographed push a “Heartland Tax Rebellion.” The National Review went one better and termed it a “States’ Income Tax Repeal Revolution.”

But Louisianans weren’t swept up in the revolutionary fervor. Jindal’s recitation of talking points from ALEC and Laffer didn’t resonate. His tax-swap idea was slow out of the gate, and it went downhill from there as his original sales tax increase projections — the negotiable side of the tax-swap equation — only worsened under scrutiny. The public response was so tepid that Republican state legislators, many of whom are members of ALEC, abandoned ship. Perhaps they sensed the artificiality of the whole production. Perhaps they noticed Jindal’s poll numbers were in the toilet.

As the Wall Street Journal reported, Louisiana wasn’t the only state where the income tax repeal “revolution” fizzled:

Friction over tax policy within the GOP has flared in states such as Louisiana, Nebraska, Kansas and Ohio, as Republican lawmakers raise concerns over projected revenue losses from income-tax cuts. Three of those states shelved big income-tax cuts that would be paid for by broadening the sales tax, and in Kansas, legislators will return next week to a continuing debate over the size and speed of proposed cuts.

Last week, the Indiana legislature passed a plan giving Gov. Mike Pence an income-tax cut that was smaller and phased in over a longer period than his original proposal. Oklahoma Gov. Mary Fallin agreed to an income-tax-cut deal with Republican lawmakers, but they postponed it until 2015 over revenue concerns. North Carolina lawmakers have been discussing a tax overhaul for months but haven’t come up with a plan.

In short, the tax swap and income tax repeal ideas weren’t a policy response to a grassroots groundswell. They were part of an artificial, top-down, national tax-cut effort that Jindal tried to impose on constituents, many of whom were more worried about state budget cuts to schools and hospitals. Louisiana led the way in resisting this manufactured policy “wave.” I guess Pelicans are counter-revolutionaries who hate prosperity.

I’d hoped that Jindal’s tax gambit would invite a meaningful debate about the inert supply-side assumptions behind his tax-repeal arguments. In a previous, long-forgotten post I tried to encourage a debate about Jindal-nomics by “defending” the governor from his many critics. I thought they were aiming at the wrong target. They were shouting down a particular tax-swap policy, which Jindal continued to modify, instead of questioning the philosophy behind it. In fact many of the conservative state leges who took a pass on Jindal’s half-baked plan this year, might well use Laffer-inspired supply-side hokum to argue for future tax repeals.

In the meantime, before this debate comes around again in earnest, I’d recommend reading this analysis by economist Peter Fisher, who heads the liberal Iowa Policy Project. It’s titled “Selling Snake Oil to the States” and it absolutely demolishes the “ALEC-Laffer State Economic Competitiveness Index” which serves as the basis for Laffer’s “Rich States, Poor States” theory. (In short, it’s the pitch we heard from Jindal earlier this year: Successful states have low income- and business-tax rates. Therefore, if Louisiana cuts those taxes, it can be a dynamic job-generator.)

According to Fisher’s study, “Rich States, Poor States consistently ignores decades of published research, making broad, unsubstantiated claims and often using anecdotes or spurious two-factor correlations that fail to control for obviously relevant factors.”

That “spurious two-factor correlations” description is very useful. Politicians of all stripes will tell you that one thing happened, and then another. They leave it to the audience to assume that one thing caused the other. It’s a dodgy rhetorical device. For example, one might say: “Texas has no state income tax. Texas has enjoyed robust job growth in recent years. Louisiana should cut income taxes to create more jobs.”

Arguments like that work in politics, but lack logic. Texas’ lack of income income tax didn’t necessarily cause its job growth. Laffer’s analysis of this “Rich State” certainly doesn’t prove that other “obviously relevant factors” aren’t in play. For example: Maybe the Texas job growth story is really more about mineral wealth than low income taxes.

There’s so much drilling activity in the south Texas Eagle Ford shale patch that it’s visible from space. Last year Eagle Ford had a “$61 billion impact and supported 116,000 jobs across a 20-county swath of South Texas.” And the reserves in Eagle Ford are expected to be dwarfed by the Permian basin in West Texas.

That’s a tremendous amount of money and jobs, and it’s ridiculous to think this wouldn’t be occurring even if Texas’ tax structure was confiscatory. (I selected Texas because its undeniable job boom really tarts up the numbers used in Laffer’s analysis.) Louisiana, for its part, is at the beginning of it’s own energy boom, with natural gas drilling in Haynesville and new deepwater drilling technologies that expand recoverable reserves.

The real economic revolution that’s occurring now is not about stimulative tax cuts — tax rates are still near historic lows. No, the real revolution is in huge reserves of natural gas unlocked by hydraulic “fracking.” I think we should consider the possibility that certain political elements, like ALEC, want to co-opt the job-creating success of the oil shale energy boom with some hastily-assembled, post-hoc, tax cut policy overlay. It certainly suits red-state governors with presidential aspirations, like Jindal and Perry.

Does this mean that Jindal anticipated — and seeks credit for — an emerging Louisiana energy boom that is set to charge up the state economy? I think so, but other factors are at play, and Jindal’s opponents (who are now legion) would do well to put a realistic yet understandable political counter-spin on the growth that is taking place.

My next two columns will take a look at the economy in Louisiana and New Orleans, with an analysis of some of the business data I presented here. Yes, there will be more on Jindal —  it’s hard for me to get over him — but Mayor Mitch Landrieu will also enter the picture.

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  • jeffreyskooks

    Looking forward to the next two columns. Maybe you can address the under-emphasized role of federal recovery dollars in the so-called NOLA “boom” that too often gets painted over with less convincing stories about “entrepreneurial spirit” and whatnot.