Louisiana – Not Ready to Yield to Jindal’s Income Tax Plan

During the time period between 1995 and 2010, the state of Louisiana lost over $ 6.5 billion in adjusted gross income, owing to the outward migration of wealth. Of course, a substantial portion of this loss can be tied directly to Hurricane Katrina. The extent of the exodus after the August 2005 Katrina disaster can be gauged by 2010 Census data: New Orleans lost 140,845 residents, a drop of 29 percent from 2000. Most moved to Texas, and many have decided to stay. In fact, all told, $3 billion of the total $6.5 billion went directly to the state of Texas. (Including Louisiana’s $3 billion contribution, the Lone Star State gained over $22 billion in adjusted gross incomes from states such as California, Michigan and New York.)

So, in general, what was the draw that brought all of this wealth to Texas, and continues bringing it to this day? For some, perhaps it was the weather, for others a growing job market – but, for most, it was Texas’ favorable tax environment. People can relocate and keep more of their hard-earned money, rather than give it to their home states in the form of high taxes. Texas is one of nine states with no personal income tax, it continues to rank first on chiefexecutive.net’s 2013 list of the best states for business.

Louisiana Governor Bobby Jindal recognized the tremendous wealth advantage of the states that had either eliminated or never adopted a state income tax. He desperately wanted Louisiana to join those ranks, and become the nation’s tenth state with no personal income tax and no corporate tax. The governor presented his sweeping tax overhaul to his state legislators back in March. His primary intent was to eliminate the income tax and offset the estimated $2.6 billion loss in revenue by increasing the state’s sales tax from 4 percent to 5.6 percent. In addition, he would increase the taxes on items such as tobacco products, plus add new sales taxes on a list of items. While opening the 2013 legislative session, the governor surprised everyone by announcing that he would shelve his plan due to lack of support. He asked the lawmakers to draft an alternative bill having the same intent: the elimination of the states’ income and corporate taxes. But the Louisiana House and Ways Committee indefinitely deferred all tax reform bills for the current legislative session.

That was the back-story, but this wrangling is far from over. The main argument against Jindal’s bill was that it would help the rich at the expense of the poor (because of increased sales taxes), even if a low-income tax-relief component were included. Behind closed doors and without any inclusion of the governor, the House Ways and Means Committee advanced eight new proposals to include a mix of cuts and new money raised by shrinking many tax break programs, including those on vendor compensation, manufacturing equipment purchases, and those given to oil and gas companies for using horizontal drilling techniques and reusing inactive wells. What is perceived by some as decreased tax breaks is perceived by others, including the governor, as a tax increase on those directly affected. In this case, the increase would fall particularly hard on Louisiana’s businesses. The governor’s response to this proposal was very clear: “It is a job killer.”

And so the saga continues. With today’s report that some of the Republican negotiators are getting cold feet about their plan, it is clear that this is a story that will certainly have its share of twists and turns before a governor and his legislature can reach an agreement. The main question is: What will be the best way for Louisiana to balance its $24.7 billion dollar spending plan, and still become a more attractive destination for migrating wealth? I guess we will have to wait and see.