State tax revenues are a balancing act drawn from a variety of sources. graphic: Tax Credit, some rights reserved
State tax revenues are a balancing act drawn from a variety of sources. graphic: Tax Credit, some rights reserved

As he seeks to eliminate the state’s income tax, Gov. Bobby Jindal has cast a covetous eye both west and east. The tax systems in Florida and Texas should serve as a model for Louisiana’s, the governor believes.

Neither state has an income tax, he notes, and both have reputations as hospitable to business investment.

But to make Louisiana look more like Florida and Texas, Jindal’s plan would have to include two significant elements that he dislikes: taxes on business and higher property taxes.

Without business taxes or hefty property tax revenue, Louisiana, under Jindal’s plan, would be much more reliant on sales taxes than Florida or Texas, perhaps dangerously so, the Public Affairs Research Council (PAR), a centrist Baton Rouge-based think tank, said in a recent report. Indeed, if the Legislature approves the Jindal plan, Louisiana would have the highest sales tax rate in the country.

“Most states have a three-legged stool for raising revenue,” said Jim Richardson, a Louisiana State University economist who co-chaired PAR’s tax study. “Texas and Florida have two legs – sales and property – since they don’t have an income tax.” Under the Jindal plan, “Louisiana would have a one-and-a-half-legged stool – sales taxes and some local property taxes.”

In seeking to replace income taxes with higher sales taxes, Jindal doesn’t want state government to collect additional money. He believes that eliminating the income tax will lure investment and create jobs. Carrying out his plan will require a two-thirds vote in both the 105-member House and 39-member Senate during the upcoming state legislative session.

Louisiana has a long tradition of a strong, centralized state government. The  $75,000 homestead exemption enshrined in the state Constitution has kept local property taxes low. As a result, state government in Louisiana pays for hospitals, community colleges, public schools and supplemental salaries for sheriffs’ deputies, services that in other states are typically financed with county or city taxes.

In contrast, Texas and Florida levy high local property taxes to pay for these things. (None of the three states levies a state property tax, and Jindal has said he doesn’t want Louisiana to impose one.)

At $1,932 per person, Louisiana residents had the 36th highest state tax burden in 2010, according to state government data, while Alaska led with $6,361 per capita. Florida and Texas were even lower than Louisiana: At $1,675, Florida was 42nd while Texas, at $1,567, was 48th.

But the tax gap shrinks when the higher local property taxes in Florida and Texas are factored in.

Louisiana residents paid $702 per capita in property taxes in 2009, less than all but five other states, according to the Tax Foundation, a conservative Washington, D.C.-based research group. Texans paid $1,475, or 14th highest. Floridians paid $1,589, the 13th highest amount, the group reported.

“Whether we like it or not, Louisiana is in many ways more state-centric than locally-centric,” reported the Council for a Better Louisiana, a centrist Baton Rouge-based research group, in a recent analysis. “In other words, comparatively more services are provided by the state in Louisiana than by local government. For instance, many states have public hospitals, but they tend to be locally funded. Louisiana is the only state with a statewide public hospital system. Similarly, Louisiana is often compared to Texas. That state has a much more robust community college system than Louisiana does, but it’s funded primarily at the local level. The point is that for a variety of reasons, it’s easier to be envious of another state’s tax structure than it is to adopt it.”

Along with the state income tax, Jindal also wants to eliminate business taxes because he believes doing so would make Louisiana more competitive with neighboring states.

But here’s another area where the Florida and Texas model will disappoint Jindal: In both states, business taxes are the second biggest source of state revenue after sales taxes.

Florida gets 9 percent of its general fund revenue from corporate income taxes, said Amy Baker, who heads Florida’s Office of Economic and Demographic Research. Sales taxes account for 72 percent.

Texas gets about 10 percent of its general fund revenue from a business franchise tax, said Dick Lavine, a senior fiscal analyst at the Center for Public Policy Priorities, a liberal Austin-based group. Sales taxes account for 63 percent of Texas’ general fund income.

In Louisiana, the corporate income and franchise tax raised about $400 million in 2012, or about 5 percent of general fund revenue, Richardson said. Sales taxes accounted for about 30 percent of the revenue. (Severance taxes on oil and gas and personal income taxes account for most of the remainder.)

So where would Jindal get the $3.3 billion he would need for the upcoming fiscal year to offset eliminating personal income and corporate taxes?

Jindal has yet to reveal details of his plan, but he has already signaled some of his intentions. Along with ruling out a statewide property tax, Jindal has vowed not to remove the sales tax exemption on groceries, prescription drugs and home utility bills. But that leaves a wide swath of transactions that he intends to tax .

The governor is looking at raising sales taxes by 1.7 to 3 percentage points, taxing some services that go untaxed today and taxing some sales that are exempt from tax now, said Robert Travis Scott, PAR’s president and co-chair of the group’s tax study.

Every one point increase in the sales tax would raise about $750 million per year, Richardson estimates. So a two-cent increase would raise about half the money needed to make up for killing the income and corporate taxes.

Scott said levying sales taxes on a number of business activities currently exempt from the tax could raise another $800 million per year. Currently, 191 businesses or activities are exempt from the sales tax (see p. 244), including purchases of pollution control systems, purchases made by pari-mutuel horse tracks and purchases of raw agricultural products.

Scott said businesses or trade associations can be expected to fight any efforts to end these exemptions – or extend the sales tax to additional transactions.

“You’ll have a constituency that you’ll have to deal with on each one,” Scott said.

Car dealers, New Orleans hotel owners and the New Orleans Convention and Visitors Bureau are among the groups that have already begun to squawk.

Some of the services that Texas taxes today include cable and satellite TV bills, amusement park tickets, data processing and home repairs, according to the Texas Comptroller’s office. Louisiana taxes a smaller number of services, including amusement parks, zoos and laundromats.

Tim Barfield, the executive counsel of the state Department of Revenue, said recently that Jindal also would like to raise revenue by levying taxes on purchases transacted by Internet. But Congress would first have to pass a bill permitting states to do this.

Jindal, who has kept his distance from lawmakers in recent years, has begun to woo them. State Rep. Jeff Arnold, D-Algiers, the longest-serving House member, said the governor and Barfield pitched their idea at the Governor’s Mansion on Jan. 23. “I’d love to say we got rid of income taxes, but I don’t see how we do it,” Arnold said. “I know plenty of retirees who don’t pay income taxes today. It won’t be revenue neutral for them.”

Arnold said Jindal is looking at raising the state’s 36-cent cigarette tax per pack by $1.05 to reach Texas’ rate of $1.41. Jindal’s position represents a sharp reversal of his opposition two years ago to even renewing a 4-cent cigarette tax. Louisiana has the second lowest cigarette tax in the country.

With his eyes firmly on a White House run in 2016, leaning heavily on sales taxes would put Jindal in stride with a group of conservative Republican governors who  see state income taxes as anathema and business taxes as hostile to corporate interests. But even a slight rise in the state’s sales tax would give Louisiana a distinction that might embarrass Jindal on the national stage: at 8.84 percent, Louisiana’s sales tax is already the nation’s third highest, according to the Tax Foundation. Adding another 1.7 percentage points—the low end of the projected hike—would give Louisiana the highest sales tax rate in the land.

Barfield has acknowledged that sales taxes hit the poor hardest. Jindal wants to avoid that by expanding a credit that rebates state money to poor taxpayers, Barfield said.

The Institute on Taxation and Economic Policy, a liberal Washington, D.C.-based think tank, will release a report later this month placing Florida and Texas among the 10 states with the most regressive sales tax systems. (Louisiana falls just outside the most group of 10, according to institute communications director Anne Singer.)  What makes them “regressive,” according to the study, is that the poor spend a much higher percentage of their income on consumer goods subject to the sales tax than do middle-class and wealthy taxpayers.

Louisiana already had the sixth worst rate of income inequality, reports The Center on Budget and Policy Priorities, a liberal research group in Washington, D.C. Texas was seventh and Florida was 12th.

While many decry a reliance on sales taxes, Barfield said recently that sales tax revenue has the benefit of growing in tandem with the state economy. In contrast, income taxes tend to rise faster than the state economy, thus producing excessive revenue for the state’s coffers, Barfield said.

Conservatives are cheering the basic thrust of Jindal’s plan even before all the details are known.

The revamped tax structure “would make Louisiana one of the most pro-growth states in the country,” said Scott Drenkard, an economist with the Tax Foundation, which the Jindal administration likes to cite. “If you tax income, that discourages wealth creation and value creation. Sales taxes are less destructive to growth.”

The group released a report in December showing that governments without income taxes have higher growth rates.

Under the Jindal plan, Louisiana would rise from the 32nd in the Tax Foundation’s Business Tax Climate to fourth.

Tyler Bridges

Tyler Bridges covers Louisiana politics and public policy for The Lens. He returned to New Orleans in 2012 after spending the previous year as a Nieman Fellow at Harvard, where he studied digital journalism....