The Louisiana Budget Project breaks down the meat of the Governor’s Sales Tax Swap proposal:
By David Gray
Gov. Bobby Jindal’s proposal to eliminate Louisiana’s corporate and personal income taxes relies on a fundamentally flawed economic analysis and is likely to hurt the state’s economy, not boost it as supporters claim. Proponents of the governor’s proposal are relying on a report called “Rich States, Poor States” to sell their plan to the public. But the report contains numerous distortions and omissions:
- While it claims that 62 percent of net U.S. job growth between 2002 and 2012 occurred in nine states with no income taxes, it fails to note that just one of those states, Texas, accounted for most of that job growth. The remaining eight states did not significantly differ from the rest of the country in job creation.
- The report fails to mention that Texas’ performance is largely due to factors unrelated to taxes, like its abundance of natural resources and geographic location along the trade-rich Mexican border.
- States with income taxes that are higher than Louisiana’s perform better on several important economic and quality-of-life indicators than their no-income-tax counterparts. For example, those states have greater median household incomes, higher household disposable incomes and more widespread health insurance coverage –none of which should be true if taxes were a primary factor in economic activity and well-being.
- State income taxes play a negligible role in business location and hiring decisions. Doing away with them will simply drain more resources from schools, health care, public safety and the other foundations of a strong economy, which are much more important to businesses looking to expand or relocate. The vast majority of the governor’s tax plan would benefit less than 2 percent of Louisiana’s companies, according to an analysis of tax information published by the Louisiana Department of Revenue. The overwhelming majority of small businesses, start-ups and entrepreneurs are unlikely to experience any tax savings. The windfall for those that do see savings is likely to be too small to allow more hiring or investments. In any case, there is no evidence that businesses add jobs because of income tax cuts. Furthermore, substantially increased sales taxes – which the governor would use to recoup revenue losses under his plan – are likely to reduce demand for goods, which would reduce production. Instead of eliminating income taxes and levying the highest sales taxes in the nation, the task for Louisiana’s elected officials is to seek ways to raise revenues beyond current levels and invest in public services like education, health care, transportation and public safety. These investments have a far greater potential to build the state’s economy and improve prosperity and well-being than the proposed income tax breaks.