Dear Legislator:
On behalf of National Taxpayers Union’s 3,200-plus Louisiana members, I urge you to support legislation that would lower personal and corporate income tax rates, as well as abolish the franchise tax. At the same time, I also urge you to oppose harsh cigarette tax hikes. Reducing—or completely eliminating—income taxes would make Louisiana a better place to start a business and would allow taxpayers to keep more of their hard-earned money. On the other hand, raising the tobacco tax would disproportionately burden low-income Louisianans and small retailers while providing an unreliable stream of revenue.
When people have more money in their pockets, they can save, invest, or spend those dollars, which will ultimately lead to economic growth. According to the American Legislative Exchange Council’s Rich States, Poor States study, from 1999 to 2009 the nine states with no personal income tax experienced an average rise in gross state product of 61.2 percent, while the nine states with the highest personal income tax rates grew by only 44.9 percent.
Additionally, states without income taxes have actually outpaced their counterparts in terms of revenue growth. From 1999-2009, states without income taxes saw a 123.7 percent increase in total tax collections compared to the national average of 70.2 percent. When combined with ongoing expenditure restraint, this kind of strong economic and revenue performance is a recipe for consistently stable and balanced budgets. Easing – or better yet, removing – the burden of state income taxes in Louisiana could go a long way toward securing the state’s fiscal future.
Furthermore, legislators should strive to make Louisiana a better place to start and expand a business – especially given the fact that states compete with one another for business and jobs. Proponents of these tax cuts understand that the long-term economic success of Louisiana’s neighbor, Texas, is largely attributable to the absence of an income tax. Eliminating 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.
While NTU’s members are encouraged by possible reductions in income and corporate tax rates, the prospect of a tobacco tax hike is very concerning. Since the poor are more likely to smoke, Louisiana’s low-income families would be hit hardest by the proposed cigarette tax hikes. A 2007 study by the Heritage Foundation showed that more than one-fourth of people who smoke live below the federal poverty line and another quarter of all smokers live within 100-200 percent of the poverty line. Raising the cigarette tax would place a heavier burden on these families, who are struggling to get by in a tough economy.
Tobacco tax hikes would also harm small businesses. The National Association of Convenience Stores reports that cigarettes account for about one out of every three dollars of total sales nationwide at their establishments. The proposed hike is certain to drive more dollars out of the state, as more Louisianans would head to nearby Arkansas and Mississippi to buy less expensive cigarettes. While shopping out-of-state, consumers are also likely to purchase gas, food, and other items that help to grow state economies.
Additionally, evidence from other states casts serious doubt on the assumption that higher tobacco taxes would necessarily lead to greater revenue. New Jersey reported a $52 million shortfall in revenues after it raised its cigarette tax by 17.5 cents. Other states, including Arkansas, Maryland, Mississippi, and Rhode Island, have also reported gaps in expected revenues following tobacco tax hikes.
With higher federal tax rates and soaring health care costs, your constituents would be best served by tax policies that emphasize fiscal discipline and economic prosperity. As such, I hope you will support efforts to reduce or eliminate income and franchise taxes, while opposing tobacco tax hikes that would harm smokers and non-smokers alike.
Sincerely,
Lee Schalk
State Government Affairs Manager