Monday, 15 April 2013 17:13

Jindal's tax scheme outed with business, legislature uncertainty

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by Bob Mann

going-out-of-business-signIt’s an article of faith among conservative politicians and business leaders that “business hates uncertainty.”



What’s meant by this is that businesses and investors prefer to have some confidence about where tax rates (and regulations) will be a couple of years (preferably five) into the future.

Investors don’t like to sink money into a new enterprise if there’s a good chance the tax laws are about to change radically, which could mean that today’s great investment might be a dog next year.

With stability comes certainty, and with certainty comes more investor confidence.

Until a few months ago, one would have suspected that Gov. Bobby Jindal embraced that philosophy.

That was, of course, before his now-”parked” gambit to blow up the state’s tax system by abolishing income and coporate taxes and increasing sales taxes by more than 50 percent.

A wide variety of groups hated the plan, not least of which was the state’s chief business lobbying organization, the Louisiana Association of Business and Industry(LABI).

In a statement on March 27, LABI’s president, Dan Juneau, drove a stake through heart of Jindal’s tax plan.

Many business owners and representatives are concerned about what they have learned—and not learned—about the tax swap proposal thus far. The companies that will have the new service taxes levied on them are fearful of the impact that it will have on their sales and on their new role as tax collectors—with all of the forms and regulations that go with that duty. Many others are leery of significantly higher sales taxes pushing local governments more towards the property tax to raise revenues—a tax which businesses pay over 70 percent of the total collections.

LABI and the business community have spent decades pursuing tax and budget reforms with a considerable amount of both success and disappointment. We certainly don’t think our state tax code is perfect. But we also have concerns about the impact of a tax increase approaching a half-billion dollars on the profitability of businesses in Louisiana.

The subtext of Juneau’s statement was the fear and uncertainty that Jindal’s plan generated. It appeared that Jindal’s plan would shift the state’s tax burden to business, and that frightened business owners, large and small, across the state.

So imagine the uncertainty which could prevail on Monday if the House Ways and Means Committee votes, as Jindal wishes, to abolish the state’s income tax – with absolutely no idea how to replace the billions in lost revenue.

Sure, Monday is federal tax day, and legislators might be tempted to make a statement that taxes are too damn high and that they are doing something to give relief to beleaguered taxpayers. Fortunately, according to reporter Tyler Bridges at The Lens of New Orleans, all but one member of the tax committee opposes abolishing income taxes without a revenue source to replace them.

Let’s hope that this kind of fiscal sanity prevails and spreads to other legislators in both houses.

It does appear that some legislators understand that they are playing with fire and that by abolishing income taxes, as Jindal wishes, they could inject a massive dose of uncertainty into Louisiana’s business climate.

Still, how comforting do you find the words of House Speaker Chuck Kleckley, that legislators should consider passing a “framework” bill that wouldn’t take effect until 2016, with a set percentage of taxes eliminated each year?

Isn’t January 2016 the month that Jindal and many legislators will leave office? How convenient for them that they would not be required to deal with the consequences of their actions.

Or, just how comforting do you find Jindal’s current tax position? Based oncomments reported in the New Orleans Times-Picayune last week, that would appear to be something along the lines of just abolish the income tax with no mind to what replaces it.

I don’t know about you, but I cannot imagine a business leader or investor deriving much confidence from leaders who appear ready to abolish billions in taxes with little mind to what will eventually replace those dollars.

Wait, you might say, even a Louisiana legislator isn’t foolish enough to do that, right?

Perhaps, except that we’re talking about taxes. And to paraphrase Sam Rayburn, any jackass can destroy a state’s tax system but it takes a statesman to build a good one.

In other words, it merely takes a simple majority of the Legislature to abolish the state’s personal and corporate income taxes, while it will require a two-thirds majority of both houses to impose the new taxes to replace them.

It really takes no political courage whatsoever to abolish taxes, but might take gargantuan courage to vote for the tax increases necessary to make up for the $3 billion-plus in annual revenues that would be forfeited if personal and corporate income taxes are abolished.

In the coming days, just remember that Jindal began this debate back in January by telling us that he wanted to cut taxes to improve Louisiana’s business climate.

Right now, however, it’s difficult to imagine a business leader anywhere who would look upon the recent conduct of Jindal and allies in the Legislature and consider it anything short of reckless.

Note: this post has been updated with information published in The Lens about the Ways and Means Committee members’ positions on the tax repeal.


by Bob Mann, published on his blog, Bob Mann blog




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