Who’s going to pay?
That is the essential question any tax plan must answer. But Gov. Bobby Jindal and his top tax adviser were either unable or unwilling to answer it Thursday when they unveiled an overview of his plan to replace income and corporate taxes with higher sales taxes.
“Whose ox will be gored?” as state Sen. Robert Adley, R-Benton, put it in an interview.
In a rare appearance before a legislative committee, Jindal explained why his plan would benefit Louisiana. He restated a key principle, that his plan has to raise as much as the state gets today – about $3 billion – from personal income and corporate taxes, and no more.
To offset the lost revenue, Jindal is proposing to raise the state sales tax by 1.88 percentage points, to begin taxing some activities that have been exempt from sales taxes and to begin taxing many services that have not been taxed at all. He also would raise the state cigarette tax to $1.41 per pack, from 36 cents today.
Jindal did not note – until pressed during a brief meeting with reporters afterward – that the 1.88-cent increase would push Louisiana to the highest average combined state and local sales tax rate in the country, at 10.75 percent. He sought to counter that by saying the effective sales tax rate – after figuring in exemptions – would put Louisiana in the middle among states.
Two of the key unanswered questions left from Thursday were:
- How will Jindal honor his statement that poor people would not pay higher taxes under his plan? Sales taxes by their very nature are regressive since poor people spend all or virtually all of their income while the wealthy save money or invest it. The Institute on Taxation and Economic Policy, a liberal, Washington, D.C.-based group, reported in January that the poor pay twice as much of their income in state and local taxes in Louisiana as do the rich. Jindal announced Thursday he would create the Family Assistance Rebate Program to replace the existing Earned Income Tax Credit, to give money to people who earn less than $20,000 per year, to offset the higher sales taxes. But how do you rebate money to people who don’t file a state income tax form, meaning you don’t know who they are or how much they earned?
- How will Jindal honor his statement that retired state and federal workers – who pay no income taxes today – won’t be punished under his plan? Jindal announced the Retirees Benefit Program, which he said would “provide a rebate for eligible retirees that have less than $60,000 adjusted gross income.” How would that work and what percentage of retirees would be protected? Retirees and their political supporters have already been warning Jindal not to raise their taxes.
The Jindal administration did not provide figures showing how his plan would affect people in different income groups, such as a single carpenter who earns $20,000 a year, a landscaper who earns $50,000 or a married doctor who earns $300,000.
“We know more than yesterday, but not a lot more,” said Jan Moller, director of the Louisiana Budget Project, a Baton Rouge group that favors higher taxes on the wealthy.
Late in the afternoon, the Jindal administration released a chart showing that individuals in every income group would pay lower taxes, but these figures were incomplete since they did not include how people would be affected by the higher sales taxes.
Another key question going forward is exactly which services the governor wants to begin to tax, which in tax parlance is known as “broadening the base.” Since announcing his intentions in January, Jindal and his top tax advisers have struggled with a basic math question: to keep the sales tax increase low, they have to begin imposing sales taxes on many professions. But many of those people are big political campaign contributors or are well represented by politically powerful lobby groups in Baton Rouge.
Doctors, lawyers and financial advisers would not have to face the new state sales tax of 5.88 percent for their services. Hairdressers, cable TV companies, tanning salons and pet groomers would.
Late Thursday, the administration provided a list of services that would be taxed.
Tim Barfield, the Revenue Department executive counsel who serves as Jindal’s point man on taxes, told the committee members that the new tax system would take effect Jan 1. How companies would make such a quick transition is not yet clear.
Meeting with reporters after the nearly three-hour committee hearing, Barfield said ending the sales tax exemptions under his plan as well as taxing the new services would raise $1.057 billion at the current 4 percent sales tax rate. At the new rate of 5.88 percent, the state would raise an additional $1.877 billion from these taxes, or about $2.9 billion in all, to offset the lost income and corporate taxes.
Barfield told the House and Senate members that he could not say when the administration would present its bill. He also said that the administration hasn’t decided whether to present its tax package as a single bill.
One bill would be easier to pass since opponents couldn’t try to torpedo individual parts that aren’t popular. But a single bill with many parts could run afoul of the state Constitution rule that requires legislation to have a single subject. A Baton Rouge judge ruled earlier this month that Jindal’s measure approved last year to change the state’s teacher tenure and teacher evaluation laws violated the Constitution because it contained more than one subject.
The legislative session begins on April 8. Jindal’s plan will need 70 votes in the 105-member House and 26 votes in the 39-member Senate.
In one potentially ominous sign, most House committee members departed long before Barfield had completed his presentation Thursday.
“Eliminating the income tax is clearly beneficial for the state, if you can do it,” Adley said. “But there are a lot of moving parts. It will be difficult to do.”
This story was updated after publication to include the administration’s list of services that would be taxed.