Louisiana Governor Bobby Jindal.
Last week, I mentioned Louisiana Governor Bobby Jindal’s proposal to end all corporate and income taxes, in order to drive economic “investment.” There aren’t many details on the plan, but it’s safe to assume that Louisiana would make up that revenue with higher state and local sales taxes. To wit, here’s the Tax Policy Center, which found that if Louisiana wanted to maintain its current revenues without income and corporate taxes, it would have to double its sales taxes:
Last year Louisiana collected $2.9 billion through the individual and corporate income taxes and another $2.6 billion through the general sales tax. Maintaining current revenues with Jindal’s plan would require that sales tax revenues more than double, which means that, absent a significant broadening of the tax base, the tax rate would also have to rise substantially. For households that don’t pay income taxes and save little or no income, this amounts to close to a 4 percentage point drop in after-tax income—about the same magnitude of tax pain for these households as going off the fiscal cliff. [Emphasis added]
Given Louisiana’s current state and local sales tax rate of 8.86 percent, this means a sales tax of 17.72 percent to make up for lost revenue. This is a huge burden, and it will fall hardest on lower income families, who—out of necessity—save little and devote a large share of their incomes to consumption.
With that said, it might be worth it if it generated a significant amount of additional growth and revenue, which would then be redistributed to make up for lost income. But given Jindal’s right-wing political commitments, that’s the most unlikely of all outcomes. Moreover, there’s no actual evidence this will add to growth—at most, you’ll have small gains that are outweighed by the higher tax burdens placed on ordinary people. It’s also worth noting Jindal’s ongoing effort to gut Louisiana’s already paltry social services—his 2013 budget makes large cuts to higher education, Medicaid, unemployment benefits, and other social services.
Which is to say that the actual effect of Jindal’s tax plan will be to take money out of the hands of ordinary Louisianans, and give it to the state’s wealthiest individuals and corporations. For a state that’s already sixth from the bottom on inequality—and near the bottom on every indice of social distress, from extreme poverty and homelessness, to infant mortality and unemployment—this is a disaster in the making.
Bobby Jindal is, of course, a top-tier contender for the Republican presidential nomination in 2016.