First Stability, Then Reform
Published on June 29, 2018
It is axiomatic that uncertainty is the enemy of business.
With this in mind, the Governor and Legislature deserve ample credit for working though the difficult political math to reach a budget compromise that not only protects key priorities, like higher education, but will also provide fiscal stability for the next several years. The importance of this stability to economic development cannot be overstated.
Further, we should recognize that the new Industrial Tax Exemption Program (ITEP) rules, approved by the Board of Commerce & Industry, will also restore stability to the manufacturing sector of Louisiana. In order to understand the importance of this sector to Greater New Orleans, look no further than our recent Formosa Plastics announcement in St. James which will bring 2,000 jobs at an average salary of $85,000, plus benefits.
Alas, stability is a necessary – but not sufficient – condition for our economic success. It would be a huge mistake to think we are done, and that now we can just coast our way to better opportunity and quality of life for all Louisianans. Urgent reform is still needed to our state budget and fiscal structure if we are to grow and prosper into the future.
Most immediately, with the Supreme Court’s recent ruling that states can collect sales tax on internet purchases, Louisiana needs to streamline its sales tax system in order to be eligible to collect hundreds of millions of annual unremitted funds. This is not a new tax – just uncollected funds – that can now be invested in education, infrastructure and other priorities for our future.
Then, Louisiana needs a more competitive and stable overall system of taxation. Our state currently has the worst of both fiscal worlds: we look expensive but collect very little. Specifically, Louisiana has a lower combined effective tax rate than Texas, but everyone thinks Texas is cheaper because they have zero income tax. Louisiana would be more competitive if we reduced or even eliminated income tax, reduced sales tax, and addressed homestead exemption at the local level. In order to do this, a number of changes will be required, including removing deductibility for federal taxes and excess itemized deductions, and selective broadening of sales tax. Note: this can be done in a way that is revenue-neutral for citizens.
Finally, Louisiana needs to decentralize state government, and return power back to the people. Parishes should have the freedom to raise revenue to cover services typically delivered by local governments (schools, police, roads, etc.), while reducing dependence on the state to fund these services. Part of this effort would be to allow local governments to determine their own level of both sales tax and homestead exemption, as voted on by the citizens of each parish. This does not mean higher taxes – just more control by citizens over their own money.
None of these reforms will be easy. They might require a constitutional convention. But they are critical to creating a Louisiana where our kids and grandkids can stay and prosper. And so, they are worth it.
Let’s build off our newfound base of stability, and now reform our way to the future.