Just a few days ago, Louisiana Governor Bobby Jindal officially released his tax reform plan that was first hinted at in January. If implemented, this proposal would dramatically alter the Pelican State’s current tax system by getting rid of the state personal income tax, corporate income tax, and the franchise tax. On the other hand, the Governor has also decided to include offsetting provisions such as a state sales tax increase from 4 to 5.88 percent and a hefty 350-plus percent cigarette tax hike.
National Taxpayers Union has consistently voiced our disapproval of tobacco tax hikes and remains skeptical of their advisability as well as their viability. By raising the cigarette tax rate from 40 cents to $1.41 per pack, Louisiana will eliminate its competitive advantage over neighboring states Mississippi, Arkansas, and Texas—though Jindal’s team did see fit not to exceed the Texas rate of $1.41 per pack.
Taxpayer advocates recognize that while this plan is not perfect, it is currently the most ambitious overhaul of a tax system among any of the 50 states. Jindal explains that “eliminating income taxes will give more control to the taxpayer. Taxing what people spend instead of what they earn gives taxpayers more control of their own money. Second, eliminating income taxes will make Louisiana the best place to start a business. This is the best way to grow our economy and create good-paying jobs throughout the state.”
The Governor is on to something. States with no income tax have routinely outshined those that take money from workers’ paychecks. According to the American Legislative Exchange Council’s Rich States, Poor States, from 1999 to 2009 the nine states with no personal income tax experienced an average growth in gross state product of 61.23 percent - the nine states with the highest personal income tax rates grew by 44.91 percent.
Additionally, states without income taxes have also outpaced their counterparts in terms of revenue growth. From 1999-2009, states without income taxes saw a 123.66 percent increase in collections compared to the national average of 70.23 percent. When combined with ongoing expenditure restraint, this kind of strong economic and revenue performance is a recipe for consistently stable and balanced budgets. Eliminating the burden of income taxes in Louisiana could go a long way toward securing the state’s fiscal future.
Furthermore, states compete with one another for business and jobs. Governor Jindal understands the long-term success of Louisiana’s income-tax-free neighbor, Texas. However, if Jindal’s proposal is approved, Louisiana would blow by the Lone Star State in the non-partisan Tax Foundation’s State Business Tax Climate Index—from 32nd to 4th overall, according to Economist Scott Drenkard. The absence of corporate income and franchise taxes would be a boon for all businesses in the state, regardless of what they might manufacture, deliver in services, or sell to consumers.
Governor Jindal should be applauded for introducing this pro-growth tax reform proposal, especially as other governors call for massive tax increases. As this plan moves through the Louisiana State Legislature, taxpayer advocates are expected to voice valid concerns over the tax increases and certain other provisions, hopefully resulting in an even stronger package that emphasizes fiscal discipline and economic prosperity.
Stay tuned to NTU.org for additional updates on the Louisiana tax reform plan.