When you go to the emergency room, you may notice that it is on the lowest floor of the hospital, and there is a reason for that. Ambulances have to get patients in and out quickly, and there is no time to waste in transporting them to higher floors. If you go to that same hospital for a check up or for a speciality appointment, you may have to take the elevator to get to your doctor on a higher floor.
Louisiana’s budget is, right now, in triage. Our legislators don’t have the luxury of philosophizing about the causes or long-term solutions; emergency medicine is being proposed to stabilize things for the short term, and the legislature should take that medicine with the same liberality with which they embraced Jindal’s tax plans.
I explained in the last blog post why John Kennedy’s solution is basically poison for our patient. It was just revealed one week ago in a state audit that Louisiana’s bond commission—which Treasurer Kennedy heads—is largely to blame for years of bad borrowing practices.
But today I want to write more positively. I want to talk about Governor Edwards’ tax plan and maybe diffuse some myths circulating about it.
First, this is not just a proposed plan of tax increases. The sad fact is that even with the governor’s plan to cut executive departments (which he just issued via order), using the state’s rainy day fund, and redirecting all non-coastal money from the BP settlement to the state, we still have a lot left to cover the $940 million shortfall from this year—and that doesn’t even begin to touch next year’s $1.9 billion chasm.
The next order of business is, again, not tax increases; it is repealing some of the liberal tax cuts that have helped make our budget so porous. To those of you whose first instinct is, “But those cuts will hurt business prospects,” I must ask: Why, then is Louisiana still ranked one of the worst states for business by many? Not surprisingly, businesses look to states with high quality of life, high educational attainment, and good infrastructure; tax credits and exemptions are not the be-all end-all for businesses.
Simply put, by bleeding our state dry for businesses, we have neglected other priorities that make states like California, Utah, and North Carolina so attractive for businesses. However, even after getting rid of these cash grabs—which include absurd incentives for the film industry—we still cannot balance the budget without raising revenues. Some taxes must go up if we are to prevent large scale layoffs and shut downs at our universities and hospitals.
The most talked-about proposal is the one-cent increase on sales tax, from 4.00 to 5.00 percent. For some reason, this is getting a lot of people angry. Don’t get me wrong; I do not support sales tax as a truly progressive solution for raising revenue. Lower-income individuals spend a larger percent of their income on items subject to sales taxes. However, we all have to accept some bitter truths in the upcoming budget.
But let’s be clear here: This increase does not give Louisiana the highest sales tax in the nation, as some have purported. Many states have state sales taxes higher than 5.00%. In fact, I just started listing them all, but I realized it would be easier to list the states that would have lower sales tax rates if we raised our state rate (AL, AK, CO, DE, GA, HI, MO, MT, NC, NH, NY, OR, SD, and WY). This increase would exclude groceries, prescriptions, and residential utilities, thus avoiding burdening our everyday purchases.
Another proposal includes raising the state cigarette tax. There are good reasons to encourage this. Louisiana has the 36th highest cigarette tax rate in the country. Additionally, as a state with relatively high rates of cigarette smokers (at least one in five, according to the CDC), we should be trying to discourage the use of smoking by levying higher “sin taxes” on the product. A portion of those revenues are generally used toward healthcare and anti-tobacco programs as well, which would help to reduce the rate of future smokers (which would, in turn, lower our healthcare costs). New York, for example had a similarly high rate of smokers in 2003 (21 percent) and had reduced that rate to 15.5 percent by 2010. Thus, we would not only be generating immediate sources of revenue, but we would be lowering our costs later on and improving our overall quality of life.
Tax increases like these will only help stabilize this year’s budget. There are going to have to be substantial changes to our tax system next year, when the legislature is able to dedicate more time to making those changes (our legislature is only able to raise taxes biannually; hence why we had to have a special session). Hopefully then we can continue to talk about more progressive tax measures, like restructuring our personal income tax rates, increasing the Earned Income Tax Credit, taxing short-term rentals like Airbnb, and reducing our jail and prison population.
Governor Edwards has expressed his personal distaste for some of these short-term revenue-generating measures; indeed, nobody wants to raise taxes. A friend explained it using this metaphor: Jindal was like the crooked repairman who fixed our leaky roof, moldy walls, and broken windows with glue, paint, and tape. We decided that we needed a more honest repairman, who tells us that Governor Jindal actually did more damage with his shoddy repair work, and the cost of fixing things is going to be more than we thought. We can ignore our new repairman if we want, but eventually the roof is going to fall down on our heads, and somebody is going to get hurt.