Back in February the Legislature created the Task Force on Structural Changes in Budget and Tax Policy with the idea that it would make recommendations to the Legislature by September on budget and tax reform. CABL serves on that task force and has been involved with fiscal policy issues dating back at least to the 1980s.
It is remarkable that when one looks back to that period, many of the recommendations made at the time mirror the ideas that are being suggested today. That’s because the fundamental principles of sound fiscal policy haven’t really changed. Our tax structure needs to be fair, it should be as simple as possible, it should seek to have a broad base that yields low rates and create sustainable revenues to support needed state services.
While the task force is looking at a broad range of fiscal policies which include spending and budget reforms, how sales taxes are collected, and the relationship between state and local governments, it is probably safe to assume that many of the concepts the task force will recommend with regard to tax structure are already embedded in studies that have been a part of the public discussion.
One is the tax study produced last year by three Louisiana economists for the Louisiana House of Representatives and another is the recent study undertaken by the Tax Foundation for the Louisiana Committee of 100. The Public Affairs Research Council has also done good work on state tax and budget policies.
So a framework encompassing a lot of good ideas is already out there. Part of the task force’s job will be to bring more specificity to that framework, while also suggesting improvements in policies that go beyond just tax structure. While that is a major undertaking, it does seem doable and the group’s final report is due in September.
Assuming all that happens, the question is where do we take it from there to assure that we don’t end up with another group of good recommendations that just flounder from a lack of legislative action. That gets complicated because our current budget and tax situation provide both opportunities and pitfalls.
There are a couple of big opportunities to see some permanent changes in our state’s fiscal policies. One is that some things have gotten so bad that many are finally realizing it’s time to just step in and fix them. A case in point is the state sales tax. During the special session, we increased the state sales tax to five percent giving us the highest state/ local sales tax rate in the country at more than 10 percent.
On top of that we further complicated it by removing an inconsistent slew of tax exemptions that affect different pennies of the tax in different ways and then we add them back at varying times. While lawmakers had few options during the special session other than to adjust those taxes, the mess it created was huge and further exacerbated the existing problems caused by our cumbersome and complicated method of collecting those taxes.
Another opportunity is that all of those sales tax increases and a lot of last year’s changes to tax credits and exemptions roll off the books in 2018. They simply go away. For that reason when you look at revenue estimates for the state in 2019 you see another funding cliff that equates to a drop off of more than a billion dollars.
The good news about both of those things is that it creates a sense of urgency to make more permanent and sound policy changes while abandoning some of the temporary and backwards policies we’ve had to enact to balance the budget. It also gives us the chance to make other improvements in a tax structure that has grown unwieldy and over complicated over a number of years.
Assuming we can develop all of those good policies and improvements, it in no way implies that making the fix will be easy. Lawmakers have already raised a lot of taxes, and even if the permanent fix would be revenue neutral for the state, it’s almost impossible to make it revenue neutral for every taxpayer. There are winners and losers anytime you make changes in tax policy and that makes legislators ambivalent to push the envelope too far.
There’s also the trust factor. Does the public trust “experts” and politicians to make major changes in tax policy and even if it doesn’t cost most of them any extra money, would they believe it if you told them? On top of that, consider that some of the changes the task force will probably recommend would involve changes to the constitution. That means voters would have to approve those changes. Whose message will they trust about how things would impact them?
Making significant structural changes in any policy is hard. Maintaining the status quo, especially when you’re dealing with taxes, is way too easy. Be that as it may, we do have an opportunity to help extricate us from some problems that have largely been of our own making. From CABL’s perspective it’s always worth it to work hard to come up with the best solutions and then do whatever it takes to help put them in place. Clearly, you always run a better-than-even risk of failing, but you never get anywhere until you try.