Kennedy: Removing income tax needs careful thought

State Treasurer John Kennedy said he likes Gov. Bobby Jindal’s idea of getting rid of the state income tax but stressed the need to “think it through.”

Kennedy was in Franklin Tuesday to speak at the weekly Rotary meeting.

“What you want to have in a tax system is a broad base — you want everybody to have to pay their fair share,” he said. “If you have a broad enough base you can have as low a rate as possible.”

He added that he believes that’s the goal Jindal is aiming for by eliminating corporate and personal income taxes.

Doing so would reduce revenues by $3.1 billion, Kennedy said.

“The question is how do you fill the hole,” he said.

Kennedy said he thinks the governor intends to do that by reducing spending.

“I think that’s a mistake but that’s just my opinion,” he said. “I think he’s going to talk about what other taxes we need to fill the hole. The obvious one that the administration has talked about is sales taxes.”

He said sales taxes don’t seem to be as unpopular as income and property taxes.

“The other good thing about a sales tax is that everybody’s got to pay it,” he said. “You can avoid an income tax but you can’t avoid a sales tax. You got to buy things to live.”

The problem, he said, is the 11- to 13-percent sales tax needed to fill the hole would be the highest in the nation.

“You got to ask yourself what would be the impact on consumer behavior,” he said. Possible impacts could include increased Internet shopping and more people making major purchases across state lines.

He said the other area being considered is a tax on services.

“The obvious question is, which services? Well, we don’t know, yet,” he said. “Are we talking about taxing haircuts? Are we talking about taxing doctors’ visits? If you hire a carpenter to work on your house do you have to collect a sales tax?”

Those questions need to be asked in the legislative process along with the impact on the economy, he said.

“If you want to encourage somebody to do something, lower their taxes. If you want to stop somebody from doing something raise their taxes,” he said. “If you want to expand your ship building industry in Louisiana, lower their taxes. If you want to slow down the ship building industry in Louisiana, raise their taxes.”

He also noted the possible impact on the movie industry, which creates “a lot of jobs” and the state gives an income tax credit.

“What if there’s no state income tax to credit?” he asked. That would likely provide incentive to other states to lure the industry away.

He said a similar situation exists with Citizens Property Insurance for which customers receive an income tax credit.

“I worry that if we get rid of the income tax, and I’d love to figure out a way to do it, … I want to be certain that some future legislature when times get tough they can’t say … ‘we need to bring that income tax back a little bit, it’s not going to be much it’s only going to be 1 percent,’ then 1 percent becomes 3 percent, becomes 5 percent, becomes 6 percent and then we’ve got a 12- to 13-percent sales tax and we’ve got an income tax.

“There’s a way to prevent that in the legislation and I hope we spend some time to do it,” he concluded.

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