All eyes in Louisiana will be on the special session of the state Legislature for the next three weeks as it works to avert a fiscal crisis.
Legislators must come up with nearly a billion dollars by the end of June to balance the current budget — as they are required to do by the state Constitution. Also, they must close a projected $2 billion gap in next year’s budget.
The special session is necessary because the Constitution allows the Legislature to take up fiscal issues only in odd-numbered years. But as our lawmakers work to find a quick fix to the state’s budget woes, they should not forget the need for structural tax reform.
The immediate budget crisis was brought about by several factors. One is the sharply lower price of oil: for every dollar the price of oil drops, Louisiana loses about $11 million in state revenue.
Another factor is that except for Southwest Louisiana, the state’s economy is in recession, with thousands of jobs lost in the upstream oil industry, further reducing state revenue while putting increased demand on social services and unemployment compensation.
And both Republicans and Democrats agree that our former governor, Bobby Jindal, contributed to the problem by keeping a campaign promise not to raise taxes while allowing state spending to spiral out of control.
The special session promises to be contentious. Louisiana was a solidly “red” state, with all statewide offices held by Republicans, until John Bel Edwards, a Democrat, was elected governor last November. But both houses of the Legislature remain firmly in the control of Republicans.
Edwards may find a few Republican allies among “legacy Democrats” — legislators initially elected as Democrats who switched their party affiliation to Republican after looking at the poll numbers in their districts. But most Republicans are in a no-compromise mood and are anxious to thwart the new governor’s efforts to advance a Democrat agenda.
The battle lines became clear when Edwards laid out an agenda for the special session that called for massive tax increases — the largest in Louisiana’s history — while proposing no spending cuts. John Kennedy, the State Treasurer and a Republican candidate for the U.S. Senate, responded by saying Louisiana has a spending problem, not a taxing problem; and he provided a list of nearly 400 ways in which state spending could be trimmed.
With only four months left in the current fiscal year, it is too late to balance this year’s budget using spending cuts alone. But Republicans are likely to fight the governor tooth and nail on any proposal to increase taxes for next year’s budget.
This isn’t a political or ideological issue; it’s a pocketbook issue. Polls show that tax increases are massively unpopular among voters. With more and more people struggling to balance their household budget, it will be hard to convince voters they should pay more taxes so the state can avoid cutting its spending.
But while our legislators work to find quick fixes for our current budget crisis, they should keep in mind the need for structural tax reform and make such reform a priority for next year’s legislative session, when fiscal issues can be addressed.
Taxes are more than a means of raising revenue for the state. The way taxes are imposed defines how the political game is played — the same way a set of rules defines how a sports game is played. For example, back in 1967, the rules of basketball were changed so that players would be awarded three points for field goals made a certain distance from the basket. (It’s a bit less than 21 feet in college basketball and 22 feet in the NBA.) This change made sharpshooting guards more important relative to tall dunkers playing under the basket. (Imagine how it would change the game if those in charge made three-point shots worth five points.)
Here’s how it works with taxes and politics: if you want tax accountability — that is, the politicians who take your money are accountable to you, the voter, for how that money is spent — then the tax base and taxing authority should be assigned to the level of government responsible for providing the goods or services. For example, if parish government is responsible for building and maintaining roads in its boundaries, then parish government should have the authority to ask the voters to approve the taxes necessary to get the job done. If the parish government raises taxes and doesn’t deliver the services as promised, then it should have to answer to the voters.
If the taxing authority for parish road construction were assigned to the state, such a move would break the link of tax accountability. If the state were to collect money from everyone across the state — for example with a state sales tax — that move would create a “pork barrel” in Baton Rouge. Local voters would then have to elect representatives to “bring back the bacon.” The merits of the projects to be funded would not matter: the state has your tax money and you just want to get as much of it back before someone else grabs it. How much a legislator brings home would depend on their political connections and allegiances. This is a sure way to increase the demand for government services and foster inefficiency and corruption.
Louisiana is an average tax state, but its tax structure is highly centralized. In part, this is due to the homestead exemption, which many consider the “third rail” of Louisiana politics … touch it and you die.
Many residents believe the homestead exemption protects them from excessive taxation. But what it actually does is remove many homes from the local tax base and force local government to rely more heavily on sales taxes. (Consider that if Gov. Edwards’ tax proposals go through, Louisiana will have the highest state and local sales tax rates in the nation.)
In searching for a long-term solution to the state’s fiscal problem, lawmakers should focus on strengthening the tax base of local government and returning to local government many of the functions now vested in Baton Rouge, where they reside beyond the purview and control of constituencies.
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