Bobby Jindal Wants To Eliminate Personal & Business Income Tax In Louisiana

By Justin Gardner | Related entries in Jindal, Louisiana, Taxes

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And replace it with a revenue neutral sales tax?

The story…

“The bottom line is that for too long, Louisiana’s workers and small businesses have suffered from having a state tax structure that is too complex and that holds back economic prosperity,” Jindal said in a statement released by his office. “It’s time to change that so people can keep more of their own money and foster an environment where businesses want to invest and create good-paying jobs.”

Jindal said the plan would be revenue-neutral and that the goal would be to keep sales taxes “as low and flat as possible.”

But…

The governor’s office has not yet confirmed or denied an article in The Monroe News-Star that reports eliminating the state income tax could require increasing the state sales tax from 4 percent to 7 percent.

As most of you know, this is hugely regressive for lower income folks who pay very little income tax in the first place and live from paycheck to paycheck. The sales tax goes up on all the essentials they buy. It’s merely tax replacement. Because guess what the tax rates are in Louisiana for individuals? 2% for income up to $12,500 for individuals and up to $25K for couples. 4% for income up to $50K for individuals and $100K for couples. And over $50K for individuals and over $100K for couples…it’s 6%. You don’t need to be a numbers expert to see which income brackets are getting their income taxes cut in half and which will see theirs raised.

Listen, I get that Republicans think that people will spend more if they have more in their pockets. And they will. But only if they’re closer to the bottom. Those who benefit from it the most (the wealthy) do not spending it to drive the economy. Sure, they spend some, but they are much more likely to either invest (which may or may not help the overall economy…I’ll get to that soon) or they save. That’s great for them, but when our economy relies pretty much solely on consumer spending…you can see how tax cuts like these do not help stimulate job growth.

Let’s look at this in a different way. What do wealthy people do with tax cuts? Invest. A lot. So they become shareholders. Partial owners of a company, so to speak. What do they expect that company to do for them? Make them money. How do companies make money? By maximizing profits. How do you maximize profits? By running an efficient business. How do you run an efficient business? By producing the most amount of revenue with the least amount of overhead. What is always the most expensive overhead? Employees.

See how investment doesn’t necessarily provide a clear line to jobs?

And remember, private companies are holding the biggest amount of cash reserves they have EVER had. They’re not spending. They claim that it’s because of economic uncertainty, but if you’ve ever worked in a corporate environment…waiting is not rewarded. Never. Ever. The corporate culture demands plans, action, now! These companies are keeping that money because they don’t need to spend it, not because they don’t want to spend it. At the same time, they’re squeezing every last hour out of their smaller workforces because all of that economic uncertainty makes it harder for workers to ask for better pay for the extra work they’re doing, thus benefitting all of those companies bottom lines even more. And once companies start hiring again…that’s a signal to workers to demand more pay. So it doesn’t benefit any of these companies to hire unless they absolutely need to.

What this all boils down to is that what Jindal is saying makes a decent sound bite…but does it make economic sense? On paper, no. It doesn’t. At least it doesn’t appear to make sense. And it’s not like Louisana’s poorest is in any great shape to begin with. And I personally care much more about them than those near the top. Because those near the top will always do well. They’ll find a way, tax cuts or not, to try and make as much money as is humanly possible. Our focus should be helping those who don’t have those skills to find a way up out of their situations. And raising their taxes isn’t going to do that.

Your thoughts?


This entry was posted on Friday, January 11th, 2013 and is filed under Jindal, Louisiana, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

12 Responses to “Bobby Jindal Wants To Eliminate Personal & Business Income Tax In Louisiana”

  1. Tully Says:

    Is it regressive? You bet. How regressive is somewhat arguable, but yes, it’s regressive in comparison to what it is proposed to replace.

    Does it make economic sense? Sorry, same answer. You bet.

    Believe it or not, corporations are mobile and can pick and choose where and how they invest. And cities/counties/states/nations hoping to gain long-term investments from corporations have to compete for them. Tax structures are one of the areas in which they compete.

    You don’t have to like it. But it’s true.

  2. Tillyosu Says:

    What this all boils down to is that what Jindal is saying makes a decent sound bite…but does it make economic sense? On paper, no. It doesn’t. At least it doesn’t appear to make sense.

    So are you saying that Jindal is wrong? Or that he just SEEMS wrong…to you.

    I find this to be a common cognitive defect on the left. They tend to get stuck believing that their own gut conclusion to a proposition is true, sometimes in the face of evidence to the contrary. For example, the idea that introducing more guns into a community might reduce gun violence, or that giving a man open ended welfare might do him more harm than good is prima facie absurd.

    I will admit, in light of the dime store economic analysis (which would probably require another post to take down) that Justin has provided us here, his conclusion seems perfectly reasonable. But if his conclusion is so obvious, shouldn’t it be easy for him to find some data to support it?

    Thankfully, someone has bothered to take the time to look at the data. CATO published a paper conveniently titled “State Income Taxes and Economic Growth” Its conclusion?

    The analysis reveals that higher marginal tax rates had a negative impact on economic growth in the states. The analysis also shows that greater regressivity had a positive impact on economic growth. States
    that held the rate of growth in revenue below the rate of growth in income achieved higher rates of economic growth.

  3. Justin Gardner Says:

    Tully, it’s true that corporations are mobile, but let’s take the example of Boeing. Kansas gave them all the tax breaks they could. The state even helped them win billions of dollars worth of business. What happened? They left. I won’t say they betrayed Kansas, but ask the mayor of Wichita what he thinks.

    As far as personal income tax, regressive taxes are just immoral. That’s all there is to it. You can’t tax people at the bottom the same as people at the top. It is completely unfair and their income doesn’t trickle down.

    Tillyosu, throw all the insults at me that you want. It still doesn’t make my dime store analysis any less relevant. And by the way…CATO? Yeah, like they don’t have an agenda. And they never provide any real numbers. Just theory. That’s fine, but I need some tangible examples.

  4. Tully Says:

    Irrelevant, Justin. The state gave them little but lobbying in Congress. While Boeing was in Wichita they pumped many billions into the local economy, and they didn’t get any more in the way of municipal/county bonding and property tax breaks that anyone else didn’t (doesn’t!) get. Their bonding has not gone unpaid, etc. The city and county did just fine out of the reelationship. Your example is far off target and doesn’t remotely address the reality of the tax-competition game at all. And I am extremely familiar with that particular situation. The city/county actually replaced all those lost aviation-sector jobs in under a year, as other aviation companies were quite happy to access that skilled-worker pool.

    Immoral? I tend to agree to some extent, but once again, that’s a completely subjective call utterly dependent on your own “moral” views, and does not change the real-world empirical mechanics of how economic changes affect government revenue streams under different tax structures. The flatter and broader the structure, the less variability in revenues in response to changes in the economy. That’s a simple and demonstrable fact. And we have had some real painful lessons about that revenue variability over the last few years, haven’t we? Nor does having a flatter and broader structure preclude progressivity. Even a single-rate income tax with a largish primary deduction/exclusion is by definition progressive, as are policies that exclude basic items like food and medicine from sales tax.

    And yes, I’m sorry, but your dime-store economic analysis is indeed irrelevant because it’s based on emotional appeals, flawed on an empirical basis, and unsupported by any evidence you have offered. You can wish all you like, but wishing does not make it so, and I believe that’s the cognitive defect tillyosu is talking about. Reality does not care what you feel is right.

    A good example is your sneering at the study referred to without being able to address it on the merits and fundamentals. That you do not like it does not make it wrong. It’s actually a pretty solid study, despite having been published by Cato, and the authors are well-respected economists with good track records of empirical studies. Your comment “they never provide any real numbers. Just theory.” is completely false. Your inability to read and process the study does not make their paper “theory.” It’s an empirical study of REAL-WORLD data collected over FORTY YEARS by government agencies. And the results are not even remotely ambiguous.

    The analysis reveals that higher marginal tax rates had a negative impact on economic growth in the states. The analysis also shows that greater regressivity had a positive impact on economic growth. States that held the rate of growth in revenue below the rate of growth in income achieved higher rates of economic growth.

  5. Tully Says:

    To extend a little on that study, and what it shows: It shows that states that had flatter tax structures had higher growth than states with more “progressive” tax structures. It shows that states that had lower marginal tax rates had higher growth rates than states with higher marginal tax rates. And it shows that states that kept their tax revenue collections increasing at a pace slower than the overall growth rate in that state had higher growth rates than states that “grew” their tax revenues at or above the state growth rate.

    That’s based on forty-one years (1963-2004) of real-world government economic data covering all fifty states.

  6. khaki Says:

    “It shows that states that had flatter tax structures had higher growth than states with more “progressive” tax structures.”

    So states have to compete with one anther to attract business. Got it. Makes perfect sense. But does that mean that having the least regressive, most business friendly tax system is “right”? There are a lots of things that businesses or governments can do that make themselves more competitive that are also immoral.

  7. Tully Says:

    Right? Wrong? Moral? Immoral? Subjective. Reality does not give a fart in a hurricane about right or moral. Reality has no feelings, makes no judgements.

    We have choices. How we choose speaks to our priorities. But no matter how we choose, we get the down side of our choices as well as the up side, and there is no magic wand to whoosh those away. When you choose a policy, you choose ALL of the predictable results of that policy, whether you are honest enough to acknowledge the existence of them or not. (You’re also choosing the unpredictable results, but you only find them afterwards.)

    What I continually see from partisans and ideologues is the minimization of or complete refusal to even acknowledge the existence of the down sides of their preferred choices, and to exaggerate the up sides, even to claim advantages that exeperience shows are simply not there in the real world.

    For example, you are highly unlikely to ever hear a rabid pro-lifer acknowledge that a total legal ban on abortion would increase the maternal death rate while failing to stop abortion, yet that’s an epidemiological and historical given. Or hear a rabid pro-choicer acknowledge that if abortion is freely available up until birth, that there will be occasions where perfectly healthy third-trimester fetuses being carried by perfectly healthy women are aborted for sheer contraceptive convenience when they could easily survive outside the womb.

    Yet we know these things are true. Either way you choose you get the whole package, not just your preferred “moral” goal. If you get that at all. But you OWN the whole thing, both the up and the down.

    As for tax-inspired capital flight, oh yeah, it’s very very real. Just ask Phil Mickelson.

  8. Slugger Says:

    Sales or other consumption taxes might be especially effective in Louisiana because tourism is an important industry there. A sales tax gets the tourist but might spare the waiter. Unless the tax is very onerous, it will probably have little impact on the tourist volume. This week-end is the Superbowl; I imagine that an increase in the price of a Hurricane of a buck will do little to decrease the number of people getting drunk on Bourbon street. Also, a moderate increase in the price of a vacation in New Orleans will not drive people to go elsewhere because NO is so unique.
    This, of course, means that what works there won’t neccessarily work in the other 49 states. I live near a border of two states, and there are shopping centers that straddle the border catering to people looking for sales tax arbitrage.

  9. Tully Says:

    Good point about tourism destinations. Of course, they already capture a lot of those dollars with “special” taxes on rental cars and hotel rooms.

  10. Angela Says:

    Don’t know much about this subject, but I find the blog posts interesting so far. What about giving companies incentives to sell more of their product, to operate more efficiently? What if the business income tax was kept in place but could be offset by the amount of sales tax collected on the product that they sell? Perhaps not a 100% offset, but a significant percentage at least. So put both in place, an income tax, and a sales tax. For personal income tax, allow for deductions based on money spent, a sort of deduction for sales taxes, to give people an incentive to spend.
    ?????

  11. Angela Says:

    Also, it seems to me that we have a “punishment” tax code in place for the wealthy who invest. There should be tax savings for people who invest certain amounts in business, as well as taxing the money made from such investments.

  12. Angela Says:

    But switching over to getting tax revenues strictly from sales tax, or having a tax based mostly on income, doesn’t seem to be the most efficient strategy for maintaining economic health.

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