Once a Tax, Always a Tax – Unless You’re Governor Bobby Jindal

If you were the Marlboro Man (if you are old enough to even remember the Marlboro Man), and smoked two packs of cigarettes a day, today you would save about a $1,000 a year if you saddled up, left Texas and moved to Louisiana. Why is that? Because the excise tax on cigarettes in Louisiana, at $0.36, is one of the lowest in the country, ranking 49th. But this isn’t about the Marlboro Man and his quest for cheap smokes. (We certainly don’t condone smoking, no matter how low the tax.) What this is about is finding alternative revenue sources for a state prepared to eliminate two huge revenue sources — nearly $3 billion worth of revenue, to be exact — all the while keeping the state revenue-neutral.

On March 14, 2013, Governor Bobby Jindal testified before a joint meeting of the House Ways & Means Committee and the Senate Revenue & Fiscal Affairs Committee, laying out his plans to totally rewrite Louisiana’s tax code. His primary focus: eliminating Louisiana’s personal income tax, corporate income tax, and franchise taxes on capital stock. At these hearings, the governor and other experts pointed out the fact that between 1995 and 2010 Louisiana lost $3 billion in adjusted gross income to the State of Texas, and $6 billion more to other states. In order to stem and reverse this tide, Louisiana is willing to take bold steps to become competitive with the nine states that have no state income tax, including its neighbor to the west, Texas. Governor Jindal is determined to attract new business’ and provide better employment opportunities for his current residents, as well as entice those who have left the state in search of a better job or an improved economic life style, to come back home.

The governor’s plan will ensure revenue neutrality by:

• Eliminating more than 200 existing tax exemptions
• Boosting state sales tax from 4% to 5.88% and expand it to services not currently taxed, like cable TV and landscaping
• Boosting the tax on cigarettes from $0.36 to $1.41 to match Texas. (Stay where you are, Marlboro Man)
• Removing $96 million in sales tax breaks
• Adopting legislation to capture sales taxes from internet purchases

As you would expect with nearly all sweeping tax reform proposals, there is opposition. In many sectors of the populace, the ramifications are perceived to be adverse to low-income individuals. A group of 250 clergy members from numerous denominations statewide hand-delivered an open letter to Governor Jindal expressing “deep concern” over his proposed tax overhaul. They see it as being blatantly unfair. By replacing the personal income and business taxes with a more consumption based tax plan, detractors see it as a benefit to the rich at the expense of the poor.

From the proponent’s standpoint, however, this plan will be a major plus for the state on many fronts. The constitutionally protected exemptions, such as food consumed at home, residential utilities, prescription drugs, fuel, manufacturing equipment purchases, certain non-profit exemptions as well as many other social programs will remain in place. Proponents feel that this should all help to mitigate the concerns on the other side.

Everyday we see this similar story being played out throughout the country. States that are seeing huge amounts of money, businesses and jobs headed towards states with more favorable tax climates are utilizing all the fiscal creativity they can muster to stand out above the rest. Governor Jindal is willing to pull out all the stops to get Louisiana there.

Oh, and one final note on the Marlboro Man. The actor who portrayed him died in 1995 – lung cancer.