Gov. Bobby Jindal wants to take the dramatic step of abolishing the state income tax on individuals and corporations, offsetting the revenue loss by raising sales taxes by 3 percentage points.
That would push the total tax rate in New Orleans to 12 percent, raising concerns that his plan will shift the tax burden from the wealthy to the poor. Low-income people pay a higher proportion of their incomes in sales taxes.
“We’d merely be shuffling the way we pay taxes,” said James Richardson, a Louisiana State University professor. “Higher sales taxes would make the system more regressive.”
Jindal has said for weeks that he wants the Legislature to revise the state’s tax system, but in a way that didn’t yield additional revenue since that would amount to a tax increase.
Jindal outlined his plan on Wednesday to senior aides and legislators, The News-Star in Monroe reported Thursday morning. Later in the day, the governor’s office confirmed his plan to end personal and corporate income taxes.
“We want to keep the sales tax as low and flat as possible,” Jindal said in a statement.
Richardson said senior Jindal aides have said he is discussing raising the state’s 4 percent sales tax to 7 percent. New Orleans tacks on an additional 5 percent.
“We’d have a double-digit sales tax rate throughout the state,” said Richardson, who serves on the four-person state panel that determines how much tax revenue the state is collecting.
Jindal said that his proposal would benefit Louisiana’s economy.
“Eliminating personal income taxes will put more money back into the pockets of Louisiana families and will change a complex tax code into a more simple system that will make Louisiana more attractive to companies who want to invest here and create jobs,” the governor said in his statement.
Richardson expressed “serious doubts” about the plan. Besides its impact on the poor, it would give local governments less flexibility to raise extra revenue by increasing their sales taxes.
“People could buy more online,” Richardson added, and such purchases might not be subject to state sales taxes. “People would game it” to avoid sales taxes.
He noted that Jindal could try to get the Legislature to end exemptions for sales taxes as a way to limit the increase in the sales tax itself.
“But I don’t think they’ll touch the sales tax exemption on machinery and equipment” because that would be too politically difficult.
To abolish income taxes, “you have to find new sources of revenue,” Richardson said. “There are few places to turn. That’s the problem.”
Abolishing the state income tax on individuals and corporations would cost the state about $3 billion per year, Richardson said. Raising the sales tax by 3 percentage points would raise about $2.25 billion per year, he said.
It would take a simple majority in the House and the Senate to end the state income tax; ending sales tax exemptions would take a two-thirds vote in each chamber.
Ending the state’s exemptions on groceries, prescription drugs and utilities would require the approval of the state’s voters, a much higher bar.
Sen. Conrad Appel, R-Metairie, applauded Jindal, in theory.
“The abolition of the income tax is an incredibly powerful tool for economic growth in Louisiana,” Appel said. “But we have to be able to evaluate the impact of the sales tax increase compared to the abolition to see that it’s a good idea.”
Would Jindal’s plan hit the poor harder? “That goes without saying,” Appel said.
Robert Travis Scott, who heads the Public Affairs Research Council, a think tank in Baton Rouge, called Jindal’s plan “an intoxicating idea. Now we have to see if it passes the sobriety test.”
Scott said the Jindal administration “fully recognizes that the proposal could have an impact on low-income people. They are working hard to keep this from being a burden on them.”
Added C.B. Forgotston, a state budget expert: “The devil, as always, is in the details.”