Analysis: 'Revenue neutral' toughens tax overhaul
BATON ROUGE, La. (AP) — By declaring his massive tax law rewrite would be "revenue neutral," Gov. Bobby Jindal has boxed himself into a requirement that seems nearly impossible to meet and that limits negotiations with lawmakers.
The Republican governor wants to get rid of the state's individual income tax and corporate income and franchise taxes, saying the proposal would boost economic development and job creation.
That would be a $3 billion loss of revenue to the state treasury.
Jindal doesn't want to heap new budget woes on the state — and on himself — so he's looking for enough other tax hikes to make up the loss.
He also doesn't want to tarnish his anti-tax record and run afoul of conservative groups he regularly courts for support, so he wants to make sure his tax system revamp doesn't drum up new cash for the state either.
That's a tough balancing act.
Economists acknowledge it would be difficult at best to suggest anything will reach a near exact dollar-for-dollar swap.
Also, anything that would be estimated to be revenue neutral for its first year wouldn't reach such a mark in the later years, because different taxes grow at different rates and speeds.
Rewriting a set of tax laws that impact two-thirds of the state's revenue is complicated enough. But the idea of revenue neutrality adds further snags to ongoing negotiations with lawmakers who will consider Jindal's tax package in the two-month regular session that begins next week.
Some of the tax breaks and new taxes up for debate have never been estimated until now. Even the best financial modeling software will have some mistaken assumptions and results.
To offset the loss of the income taxes, Jindal proposes raising state sales taxes from 4 percent to 6.25 percent, raising cigarette taxes by $1.05 per pack, eliminating a portion of severance tax breaks on the oil and gas industry and tweaking other tax break programs.
The most sweeping tax hike proposed — to generate about half the lost income tax revenue — would charge the higher sales tax rate on a host of previously untaxed services.
For individuals, that would include items like haircuts, festival tickets, cable TV and Internet services. For businesses, estimated by the Jindal administration to pay 80 percent of the new sales taxes on services, those taxes would be charged when companies hire outside accountants, bookkeepers, computer networkers, technical consultants and more.
For lawmakers looking to tweak the governor's proposals, the confines of revenue neutrality kick in.
If lawmakers want to preserve a tax break that Jindal proposes to scrap, they'll have to find another way to pay for it, either by choosing another tax break to eliminate or charging increased taxes on something else.
If lawmakers want to get rid of tax breaks that they think are a waste of state money but that Jindal proposes to keep, they'll have to lower taxes somewhere else to ensure no new revenue is raised for the state.
If lawmakers want to take out some services Jindal proposes to tax, they'll have to find another set of services to sweep in for taxation or come up with some other way to fill in the gap of the lost revenue.
Dizzy yet from the mathematical calculations?
And if lawmakers and the governor get the numbers wrong, the state's already hefty budget problems could get much deeper, with public colleges and health care services on the chopping block.
Already, the Jindal administration has had to tweak its proposal, raising the sales tax increase higher, to address a nonpartisan analysis by the Public Affairs Research Council of Louisiana that said Jindal's previous proposal fell far short of revenue neutral.
Trying to make the numbers balance for the goal of revenue neutrality could easily take someone's focus off the bigger picture of what is the best tax structure for the state and its people.
Melinda Deslatte covers the Louisiana Capitol for The Associated Press.