Friday, 27 February 2015 18:18

Jindal’s tax credit cuts help Iowa campaign, hurt economic development, parishes

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filmThe Jindal Administration announced on Friday, February 27  that the Governor seeks to repeal some $777,346,103 in state tax credits netting the La Treasury $589,794,455.  


     By 'raising these taxes', Jindal seeks to terminate some of the state's strongest tools for economic development, yet he also avoids the moniker of enacting a tax increase that could doom his Presidential primary chances in Iowa.  Jindal bets that taxophobic Republicans will judge a repeal of tax credits as a termination of a form of corporate welfare rather than hiking taxes in a more conventional fashion.

    Forget that repealing these state tax credits still constitutes a major business tax increase. Forget that in contrast, increasing the state sales tax by one penny would net over $750,000,000, a similar sum, or that a cigarette tax increase to the levels charged in Texas would produce almost $200 million.  Either of those moves, however, would draw the ire of conservative activist Grover Norquist and his libertarian allies like the Club for Growth. By framing this is an attack on corporate welfare, Jindal avoids their ire.   He raises taxes without becoming verboten in the GOP presidential primary season, and the impact of his tax hikes would not be felt until he is already left the Governor's Mansion.

     While the State of Louisiana only makes back $187,551,648 in direct taxes on the tax credits it expends, House Speaker Pro Tem Walt Leger (D-New Orleans) warned The Louisiana Weekly, "I think it's a mistake to look at tax credits as just what gets paid back to the state treasury."  

       The rollover effects of the tax credits to other parts of the state's economy can often mask the actual cost to the state treasury. Louisiana benefits from these tax credits in ancillary ways.  A study last week of the film tax credits shows that nearly 15% of tourists decide to come to Louisiana because they viewed the state positively displayed in movies.

    Perhaps that's the reason that the film tax credits are one of the only areas Jindal does not seek to cut.  However, the Digital Interactive Media and Software tax credits that helped propel "below the line" video and Internet production for the movie industry is on the chopping block.   It's arguably one of the state's most successful tax credit programs. In 2014, Louisiana granted $752,312 in these tax credits, but got back $328,766.  The direct cost of the state treasury was $423,546.

      However, that masked the fact that the software and video production firms who took advantage of the tax credit not only produced jobs, but paid rents and property taxes that arguably produced at least that much income for parishes. Those revenues are not recorded in the state figures.

      "If you look at what Parishes receive from these credits, Louisiana [as a whole] gets back as much as it puts in," Leger said primarily of the film tax credits, but his point applies to the myriad of different tax credit categories.  Moreover, the savings that the Jindal administration calculates in no way take into account the income taxes that are paid by those employed in the industries that exist primarily due to the credits.

      The Musical & Theatrical tax credit, also known as "Broadway South " cost the state $8,754,604.  Ostensibly, it has the smallest return, at just $185,497.  So in theory the treasury loses $8,569,107.  

     However, the theatrical productions brought in thanks to these credits, such as the musical stage production of the Addams Family, which rehearsed its nationwide tour in the Crescent City, alone paid taxes on Union scale wages for a cast and crew of dozens.   The amount paid in income taxes to the state treasury on that one Broadway show alone easily matches the $185,000 figure.

    The sum that the city of New Orleans earned in sales taxes on that show--and those it employed--easily surpasses that number.

    Parishes, particularly, are on the major hook for one of Jindal's most costly repeals.   Louisiana is one of the only states in the union to mandate an inventory tax.  This was a major liability in attracting businesses in past decades. To solve the difficulty, the legislature created the Inventory Tax Credit, a rebate exactly equal to the amount that businesses paid parishes for inventory kept in their warehouses.  

     To the governor, this is irrelevant. That money goes to the various parish coffers, not his.  Still, it's a misnomer to say that the state gives away $452,676,421 in credits and only gets $75,961,191.  The $376,715,230 difference is not a loss. Forgetting corporate income tax, parishes depend upon this income.  The revenue would probably have to be made up by the State of Louisiana if parish treasuries took such a catastrophic loss.

     "Without the inventory income, Jefferson Parish – and many other parishes – would be in serious financial danger, " explained Jefferson Parish Pres. John Young.  "Repealing the tax credit would leave us uncompetitive with other states and many businesses would leave Louisiana."  This is the reason that Young opposed this serious element of governors previous tax reform effort when it first was proposed over a year ago.

     Perhaps the most potentially catastrophic tax credit repeal under the Jindal proposal is the Angel Investor credit.  Called one of the most successful economic development programs in the state's history, it has encouraged wealthy Louisiana residents to engage in large-scale venture-capital efforts in the state. 

    Since they must be Louisiana tax payers to qualify for the credit, the fruits of their labor already come to the treasury a state income taxes. Some believe this loss could encourage wealthier Louisianians to relocate to zero income taxed states like. Texas or Florida.  So, the $1,568,555 expended for $690,898 back would cost Louisiana much more than $877,657.

      But that wouldn't happen until after Bobby Jindal left office.  In fact, the impact of most of the tax credit repeals would not be felt until the beginning of 2017. Long after the Republican primaries, and the presidential election, have ended.

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Christopher Tidmore

Christopher Tidmore is Editor At-Large of the 
Louisiana Weekly Newspaper.  He also hosts Saturday talk show on WRNO 99.5 AM.

He can be reached at [email protected]

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