CABL: Phase-in Jindal tax
BATON ROUGE (AP) — Gov. Bobby Jindal’s tax plan should include a margin of error so the state doesn’t end up facing new budget shortfalls, the leader of a government watchdog group said Monday.
The Council for A Better Louisiana, or CABL, suggests that if lawmakers agree to the tax system revamp, it should be phased in over time rather than take effect all at once, to ensure state revenue drops aren’t larger than estimated.
“This is a very risky type of thing, unless we’ve got some insurance,” said Barry Erwin, president of CABL, which released a commentary on the governor’s proposals.
Erwin said without a cautious transition, the Jindal administration and lawmakers run the risk of creating new self-inflicted budget crises in a state that has seen five years of budget shortfalls and deep cuts to public colleges and health services.
The Republican governor wants to eliminate state income taxes for individuals and businesses. In exchange, he wants to raise state sales taxes and tobacco taxes, to charge sales taxes on an array of new items and to scrap some existing tax breaks.
Jindal describes his tax proposals as a way to create more job opportunities in Louisiana and attract more companies to the state. He says states without income taxes, like Texas, have outperformed other states in economic and population growth.
Critics say the governor’s plan would shift more of the tax burden and the costs of operating state government to poor and middle-income residents. The Jindal administration disagrees with that assessment.
Lawmakers will consider the tax package in the regular legislative session that begins April 8.
Jindal says the proposal would be “revenue neutral,” not generating any additional money or losing the state any revenue. So, the new taxes would need to raise about $3 billion to offset the loss of the state income taxes.
But questions have been raised about whether the numbers balance.
Another nonpartisan group, the Public Affairs Research Council of Louisiana, released an analysis last week that said Jindal’s plan could be as much as $650 million short of being revenue neutral.
Erwin said the state needs to devise a transition time, rather than doing the entire tax swap on Jan. 1, as Jindal proposes.
He said the state doesn’t have experience with some of the taxes it would newly collect under the governor’s plan, and he said that makes it difficult to correctly project what tax revenue would be raised.
For example, the governor’s proposal estimates $1.4 billion would be raised by putting new sales taxes on services, like haircuts, cable TV, Internet services and veterinary visits.
Jindal’s leader on the tax overhaul, Tim Barfield, said 80 percent of those sales taxes on services would fall on businesses, which would pay new taxes on items like outside accountants, architects, environmental consultants, computer programmers and janitors.
“We’re just going to have a lot of mistakes, and businesses are going to make a lot of mistakes until this thing shakes itself out. We need to be in a position where we’re comfortable that we’re not going to be losing drastic amounts of revenue,” Erwin said.
In its commentary, CABL noted that Texas made a large tax change in 2006 that replaced its corporate income tax with a “margin” tax designed to sweep in a wider group of businesses. When the change kicked in two years later, the new tax brought in about $2 billion less than estimated, CABL said.
Erwin suggested starting the sales tax hikes all at once, while phasing out the income tax to ensure the sales tax collections are coming in as expected and to give lawmakers the ability to tweak the tax rewrite if projections are off the mark.