Friday, January 25, 2013

A reasonable alternative

Posted By on Fri, Jan 25, 2013 at 12:56 AM

A growing number of people are saying that Gov. Bobby Jindal’s proposed “tax reform” plan would shift too much of Louisiana’s revenue burden to its poorest citizens. Jindal supporters want criticism withheld until the plan is finalized. That would be a fair request if the governor weren’t keeping the details under wraps until very late in the game.

Besides, one doesn’t have to know everything about the plan to suggest improvements. What we know is that Jindal proposes to eliminate individual and corporate income taxes and the corporate franchise fee. To offset the $3 billion that would cost the state, he'll have to nearly double state sales tax revenues. Even a "modest" sales tax hike of a penny and a half would give Louisiana the highest combined (state and local) sales tax rates in the country — by far.

In addition to raising sales taxes, Jindal wants to eliminate many or even all sales tax exemptions, most of which benefit existing businesses, and institute a unified sales tax reporting system. He says his goal is to make the tax code simpler, broader in application, fairer and more attractive to business. That’s a worthy goal, and parts of his plan would accomplish that.

For example, eliminating the corporate franchise fee is a great idea. The fee generates relatively little revenue but is a huge turnoff to businesses. Ditto for the corporate income tax and the unified sales tax reporting system. Many Louisiana businesses have to file multiple returns for local and state sales taxes. Most other states have one statewide filing system.

But I question the wisdom of eliminating the individual income tax. Instead, why not make it simpler, broader, fairer — and lower?

Much lower.

Right now Louisiana allows scores of income tax exemptions and deductions, which complicates individual returns. Instead of ditching the tax altogether, why not just tax everyone’s adjusted gross income — but cut the rates in half, or adopt a flat tax, an idea that Republicans love anyway?

Louisiana’s marginal income tax rates are currently 2, 4, and 6 percent. Twenty-one states have higher marginal rates; that puts us in the middle of the 41 states with income taxes. If we cut our rates in half, or adopt a flat rate of, say, 2.5 percent, we’d have the LOWEST maximum rate among states with an income tax — and filing returns in Louisiana would be simple. REAL simple. We could even keep exemptions for retired military veterans, the first $10,000 in income, and all Social Security income. That would promote the goal of making Louisiana more attractive to retirees.

More important, we would not have all our revenue eggs in one basket, which the Public Affairs Research Council (PAR) and others caution against. We’d instead have a balanced tax policy, no corporate income tax or franchise fee, and we probably wouldn’t have to raise sales taxes.

Jindal seems hell-bent to eliminate all income taxes. That idea sounds great, but finding other taxes to make up the $3 billion in lost revenue won’t be easy. Many suspect he will “punt” the hard part to lawmakers after pushing them to repeal the income tax. If leges fall for that, they deserve to be in the political trick bag.

Having the highest sales taxes in America would undercut Jindal’s boast that he wiped out income taxes here. He could get just as much mileage out of creating America’s lowest income tax rates, especially if he does it with a flat tax. Meanwhile, eliminating the corporate franchise fee and corporate income tax would still give him lots of conservative appeal nationally — and Louisiana would look very business friendly.

I call that a win-win.

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