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Jindal's tax plan: D.O.A. 

Jeremy Alford on how the tax plan fell apart, where we're headed now -- and what's being overlooked

click to enlarge Gov. Jindal surprised many when, on the opening day of the annual legislative session, he dropped his much talked-about tax-swap during his opening statement.

Gov. Jindal surprised many when, on the opening day of the annual legislative session, he dropped his much talked-about tax-swap during his opening statement.

It was as if Huey Long's Capitol building had been overinflated and suddenly punctured, blowing back hair and rustling papers, letting waves of angst and uncertainty escape over the Mississippi River in Baton Rouge, and ultimately restoring the proper pressure inside the limestone skyscraper. A number of lawmakers even gave Gov. Bobby Jindal a standing ovation for his dramatic retreat on the opening day of the annual legislative session April 8, when he declared his tax-swap plan politically untenable.

  The weeks leading up to Jindal's speech last Monday brought tensions to a critical mass. The business lobby vowed opposition to Jindal's plan, research groups questioned its math and public opinion tanked on the idea of exchanging personal income taxes for a significantly broader — and higher — sales tax.

  The governor won lots of praise from national conservative think tanks, but inside Louisiana, the worm turned quickly against him — and against House Speaker Chuck Kleckley, R-Lake Charles. Endorsed for the gavel by Jindal and easily the governor's most reliable legislative ally in the current term, Kleckley had delivered on education and retirement reforms last year and so far has kept the lid on serious budget objections from fellow GOP conservatives, known as the fiscal hawks.

  As before, Jindal hoped Kleckley would keep the troops in line behind his tax-swap proposal, but House members urged the speaker to slow down the plan. Days after public opinion polls showed Louisiana voters solidly against Jindal's proposal, Kleckley obliged his colleagues by pushing back the bill's start date, explaining he wanted to wait until the Legislative Fiscal Office released its analysis. That meant a delay of at least two weeks, possibly more.

  Against that backdrop, Jindal's opening-day announcement that he had decided to "park" his plan was universally described as a defeat for the governor — if not an abdication on his part. Jindal effectively punted the entire issue of tax reform to lawmakers, urging them to find a way to pay for eliminating individual income taxes but offering no alternatives himself.

  Kleckley said in an interview afterward that Jindal's decision gives the Legislature "a great opportunity."

  Also instrumental in the demise of Jindal's proposal, possibly more so than anyone else, was House Ways and Means chairman Joel Robideaux, R-Lafayette, who did not grant an interview for this story. Robideaux actually beat Kleckley to the punch in calling for a delay. Sources close to the negotiations between the chairman and the administration also say Robideaux, who was scheduled to author Jindal's tax swap bills, privately told Team Jindal that the votes were not there. The news was not well-received.

  In the end, Robideaux completely disassociated himself from the governor's package, say some lawmakers, who add that he vowed not to move the bills or file any other version of them, so as to completely remove Jindal's touch, real and perceived, from the process. The chairman's move bolstered his standing among his colleagues. "We have the right guy for the job," one Ways and Means Committee member said of Robideaux.

  After Jindal "retrenched" on his plan (as The New York Times described it), Robideaux told a small group outside the House chamber that he had no idea Jindal was going to pull down the tax plan in his speech. The author of the governor's plan said he learned about the reversal just moments before Jindal took to the dais — via a text message sent by a reporter.

  In the hours following the governor's address, in the marbled rotunda between the House and Senate chambers, lawmakers milled around, discussed possibilities, joked with lobbyists, picked up complimentary coconut pies — among the many perks during session, like free Ponchatoula strawberries and Ruston peaches — and many gave interviews.

  During that short spell, it felt like a spring Louisiana session again. It did not seem to matter how the plan was axed or even what came next. A political showdown had been avoided, although perhaps only temporarily. "Now we can all take a deep breath," Rep. Jerry "Truck" Gisclair, D-Larose said.

  That patch of serenity did not last long.

In promoting an ambitious plan in the face of mounting opposition, and after traveling the state to initiate a tax reform dialogue that he since has abandoned, Jindal has created a huge void in the Capitol's normally dense political universe.

  It is said that nature abhors a vacuum, and that is certainly true of politics. Jindal's decision to "park" his tax plan — followed by his request that lawmakers finish the job themselves — has touched off a political footrace to someplace unknown. Republicans, Democrats, a statewide elected official and one of the Legislature's rare independents are jostling to fill the void and give the session some meaning.

click to enlarge Sen. Karen Carter Peterson, D-New Orleans, noted that Greene proposed a 10-year phaseout of personal income taxes in 2011, which stalled on the House floor after Jindal opposed it for not replacing lost revenues.
  • Sen. Karen Carter Peterson, D-New Orleans, noted that Greene proposed a 10-year phaseout of personal income taxes in 2011, which stalled on the House floor after Jindal opposed it for not replacing lost revenues.

  While Jindal spent months drafting his plan, those vying to pick up his gauntlet have only until June 6 to gauge public opinion, craft an alternative and pass it through the House and Senate. Their task is all the more daunting in light of constitutional requirements; repealing or lowering taxes only takes a simple majority of each legislative chamber, but raising taxes to replace the lost revenue takes a two-thirds vote in each chamber.

  Many urge prudence, subtly reminding lawmakers not to forget what Jindal has learned. Just look to Nebraska, where legislators recently slowed their tax overhaul train, opting instead for a study commission. "Starting all over in the limited timeframe of the current legislative session would be a daunting task at best and of great potential risk for the state at worst," said Barry Erwin, president of the Council for a Better Louisiana (CABL). The day after Jindal's retreat, CABL suggested that lawmakers do likewise and focus instead on the budget and education reform.

click to enlarge Sen. J.P. Morrell, D-New Orleans, likened Jindal's budget to a "house of cards" that's tipsy — "If just one thing goes wrong, the whole thing will come falling down," he said. - PHOTO BY SHARON TURNER
  • Photo by Sharon Turner
  • Sen. J.P. Morrell, D-New Orleans, likened Jindal's budget to a "house of cards" that's tipsy — "If just one thing goes wrong, the whole thing will come falling down," he said.

  Other factors weigh in favor of caution. Tim Barfield, the state Revenue Department's executive counsel and Jindal's point man on taxes, was criticized by lawmakers last week for not specifically asking that any plan lawmakers pass be revenue neutral. Revenue neutrality (i.e., making sure that the loss in income tax revenues is made up through additional taxes or other means) was a cornerstone of Jindal's original plan.

  Meanwhile, House conser-vatives are picking up the slack without totally embracing revenue neutrality, or using the phrase. "If we eliminate income taxes, we're going to have to replace it with something," Kleckley said, adding that he favors a 10-year phase-out of the personal income tax that would begin in two years.

  House Republican Delegation Chairman Lance Harris, R–Alexandria, urges the same course. "There seems to be broad agreement that while an income tax repeal or phaseout is a desirable goal, it should be done in a responsible way that protects our core priorities," he said.

  Barfield further suggested that phasing out the income tax over 10 years would give lawmakers more time to find replacement revenue. Others noted that some of those pushing for a 10-year phaseout will not be around in just a few years — effectively punting the issue of revenue neutrality to future Legislatures.

  For his part, Jindal now appears to favor a repeal in personal income taxes only, rather than repealing corporate income taxes as well. His original plan included a repeal of all income taxes. That, however, was before the Louisiana Association of Business and Industry (LABI) came out against his sales tax increase.

In the wake of Jindal's retreat, some lawmakers are queuing up to put forward their own ideas. Rep. Jerome "Dee" Richard of Thibodaux, who has no party affiliation, says he will file legislation to "cut back on, if not eliminate, income taxes."

  The Legislative Black Caucus filed its own plan even before Jindal punted. The caucus plan would reduce individual income taxes, repeal corporate franchise taxes and increase taxes on tobacco products. That package is championed by caucus Chairwoman Rep. Katrina Jackson, D-Monroe, a rookie legislator who is quickly earning the respect of her colleagues.

  Reps. Hunter Greene, R-Baton Rouge, and Alan Seabaugh, R-Shreveport, have introduced separate bills to phase out personal and corporate income taxes over a 10-year period, while Rep. Harold Ritchie, D-Bogalusa, has introduced bills to reduce personal and corporate income taxes.

  Rep. Kirk Talbot, R-River Ridge, has bills to phase out corporate income and franchise taxes and to flatten the personal income tax to 1.9 percent on incomes greater than $12,500. He also has proposed an alternate plan to phase out the personal income tax.

  Members of the House Ways and Means Committee say the bills authored by Greene and Jackson have generated early interest and may be heard this week. In their current form, though, Jackson's bill are not supported by the entire Black Caucus; there is a disagreement over exactly how much to cut income taxes and some Democrats have suggested the package is no longer relevant, with Jindal's plan out of the way.

  The difficult part for any plan to eliminate current taxes is finding alternative taxes to replace the more than $3 billion the state brings in from income taxes (personal income taxes alone bring in $2.7 billion). If there is an easy part, many lawmakers favor a higher cigarette tax and scaled-down sales tax exemptions — elements that were in Jindal's original plan. The difference is the governor's plan broadened the sales tax so much that it gagged businesses as well as advocates for the poor.

  Modest revenue streams might give lawmakers enough money to cover the front end of a phase-out, but it would be up to the next House and Senate, and the next governor, to make the really touchy choices down the road. That means Jindal's tax debate, if not resolved this year, could go on much longer than anyone expected a few months ago.

The governor may not have poisoned the well for tax reform this year, but a lot of folks certainly seem reluctant to drink these days. State Treasurer John Kennedy said that is because the decision-making authority is in the wrong hands. Any proposed tax changes should be put into a proposed constitutional amendment and sent to voters for final approval, he said.

  "Though well-intentioned, the governor's plan was not going to pass. Nor should it, if for no other reason than it would have raised taxes on businesses by $500 million," Kennedy said, referring to Jindal's original proposal to impose a sales tax on a variety of business services that have been exempt for decades.

  Some New Orleans lawmakers believe Jindal's failed tax plan already has had a detrimental effect on the state by distracting attention away from his admini-stration's budget, which is facing a $1.3 billion shortfall.

  Sen. Karen Carter Peterson, D-New Orleans, noted that Greene proposed a 10-year phase out of personal income taxes in 2011, which stalled on the House floor after Jindal opposed it for not replacing lost revenues. "We believe the focus needs to be on our state budget, which has been cut to the bone over the past few years," said Peterson, who also chairs the Louisiana Democratic Party.

  Most lawmakers interviewed for this story expressed greater concern over Jindal's proposed $24.7 billion budget than the tax debate. "It's going to be brutal," said Sen. Bret Allain, R-Franklin, a member of the budget-writing Finance Committee. "There's not enough money to go around for all of the services we need."

  House Speaker Pro Tempore Walt Leger, D-New Orleans, a member of the House Appropriations Committee, said emotional testimony from the public is heating up. "Today we heard from Louisianans who have disabilities, from senior citizens and others who talked about how the cuts will negatively impact their lives if Gov. Jindal's budget recommendations are adopted," Leger said April 9. "The most important bill in this session is the budget bill."

  Sen. J.P. Morrell, D-New Orleans, described attempts to fashion sound tax policy at this point as "fiscal fantasy." He also likened Jindal's budget to a "house of cards" that's tipsy — "If just one thing goes wrong, the whole thing will come falling down," he said.

Jindal's budget relies heavily on contingencies such as refinancing debt, legal settlements, land sales, transferring dedicated funds and health care privatization contracts. A member of the Appropriations Committee said the structure is worrisome, "making it not when the budget gets out of committee, but if."

  Moreover, the contingencies amount to one-time revenue, which the Constitution says cannot be used for recurring budget costs. That has not stopped Jindal — or other governors — in the past, but lawmakers now worry that Jindal's budget takes that practice to dangerous extremes. Conservative lawmakers, like members of the Budget Reform Coalition (aka the fiscal hawks), have blasted Jindal's budget as irresponsible, noting the state is budgeting money it may not receive. Several of them, including Talbot, have sued the governor in an attempt to bring the issue to a constitutional head in court.

  If certain lands are not sold or if other deals turn south, Jindal's budget could quickly fall out of balance. For example, the Willis-Knighton Health System recently announced it was pulling out of negotiations at the medical center in Shreveport, the biggest of the public hospitals Jindal is attempting to privatize.

  Additional legal challenges loom. For example, the governor wants to use money from an artificial reef fund to prop up education and health care. In response, the state Wildlife and Fisheries Commission, consisting solely of Jindal appointees, is debating possible litigation.

  Elsewhere, the popular TOPS scholarship program, according to the current budget bill, would be underwritten largely by the state's tobacco settlement fund. Never before have state general fund dollars contributed so little to TOPS' bottom line.

  After Jindal delivered his opening remarks to the Legislature last week, the Public Affairs Research Council suggested that, because of the governor's near-complete focus on his tax swap plan, "all other major concerns facing the state, and all other aspects of tax reform that might be usefully pursued, seem to have been totally eclipsed by this one proposed initiative. ... The governor made it clear that an income tax repeal is all he wants or expects of the Legislature this session."

  In effect, the governor has created two voids: one on tax reform; one on the budget.

  Among the topics not mentioned by Jindal during his roughly 2,000-word speech — short by Jindal standards — were his budget's $1.3 billion revenue shortfall for the next fiscal year; the privatization of public hospitals; the funding obstacles faced by the state's construction program; money for higher education; the future of the state's Medicaid program; and the court challenges delaying his landmark education and retirement reforms of 2012, which may have to be voted on again this session.

  Rep. Herbert B. Dixon, D-Alexandria, noted that the session has many moving pieces, and some were obscured in the mists of Jindal's tax-swap proposal. That is troubling, he said, because this year's session may well be remembered for the budget it produces, not the tax plans it studied but did not pass.

  "This is the time where John Q. Public needs to get very involved. They need to come to the Capitol, use the phone, send an email, mail a letter, find a homing pigeon — whatever it takes," said Dixon. "Things are about to get really moving here and people are going to be caught by surprise."

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