Will State Economy’s Improvement Finally Offer An Opportunity for Tax Reform

It’s not great news, but at least it’s encouraging. Louisiana’s economy which had been shedding jobs by the thousands for months seems to be stabilizing. Whether the slow uptick that’s beginning to materialize is enough to translate into a more stable state budget remains to be seen, but if the state’s recession is indeed over, as the economists say, perhaps it will bring with it an improved environment to consider meaningful tax reform.

There’s no question it’s been a rough couple of years for Louisiana’s economy. The collapse of oil prices and the effects it’s had on the energy sector and the industries that support it has been huge. While it’s taken its biggest toll on individual markets like Lafayette and Houma, it’s also raised additional havoc on a state budget that didn’t need any more issues to deal with.

But now there are signs of light at the end of the tunnel. Employment in the state is up more than 21,000 jobs from June of last year, and about 25,000 since last August when state employment appears to have bottomed out. The state’s jobless rate, while still high compared to the rest of the country, has inched down to its lowest mark in more than 40 months. Unfortunately, we’re still more than 12,000 jobs short of where we were during Louisiana’s peak employment period in 2014, but finally the numbers seem to be trending in the right direction.

One would think that would have a positive impact on the state budget, which has been mired in cuts and crises for almost 10 years. It has, but it’s only evident in very modest ways when looking at revenue forecasts for the coming years. At least it all suggests the possibility of a period of budget stability that we haven’t had for quite some time.

Except for one small thing. While the economy might be at least somewhat on the mend, there’s this thing they call the “fiscal cliff” that’s looming out there in 2018 just to ensure we can keep the instability going a little bit longer. That’s when more than a billion dollars in temporary taxes fall of the books, and lawmakers have to decide what to do about it.

The answer, of course, from CABL’s perspective is to deal with the cliff through a revenue neutral reform of our tax structure. Translated that would mean a more or less even swap of revenues from a structure that has sent us tumbling in the rankings for tax climate, to one that provides us more stability and makes us more competitive.

Yes, that’s what they were supposed to do during this year’s legislative session and no, they didn’t do a bit of it. Which begs the question of why think anything different will happen between now and the time the fiscal cliff arrives?

Well, there are a couple of things. One is that the governor is beginning to reach out to business leaders, and hopefully other stakeholders, to more fully explain the situation and get their input. His Commissioner of Administration, Jay Dardenne, is also hitting the statewide civic club circuit with a spirited presentation of the issues.

Another factor is the realization that this time the deadline is real. Lawmakers knew during the regular session that the cliff was still a year away and that they could have a special session anytime to deal with the problem. In legislative terms, a year is like a lifetime and they took full advantage of it.

And finally, there’s this thing about the economy. While it was going downhill, it almost felt like there was no end in sight, and that created pressure from some to raise even more in taxes. But if we have, in fact, bottomed out and are now moving into a period of slow growth, it takes some of that pressure off. Perhaps that will allow legislators to view the budget through the lens of a better and more competitive tax structure rather that the constant need to make cuts to things like higher education, health care and TOPS.

Whether anything positive actually happens remains to be seen, of course. But Louisiana has set the stage for yet another budget drama, and it would be nice to think this time the story might end on a more productive note.

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