It's been about three months since Louisiana Gov. Bobby Jindal (R) unveiled his plan to eliminate all income taxes and corporate taxes in the state, replacing the lost revenue through a combination of spending cuts, higher sales taxes, and new business taxes. How's it working out? The bad news for the governor is that his popularity has dropped. The good news for Jindal is his plan remains alive anyway.
To briefly recap, the Louisiana Republican hopes to boost state sales taxes from 4% to 5.88%, raise cigarette taxes from 36 cents per pack to $1.41; and assess sales taxes on a wide range of business services, including new taxes applied to everything from haircuts to veterinarian appointments to photographers. This new revenue would, Jindal believes, make it possible to eliminate income taxes and corporate taxes in a deficit-neutral way.
Of course, it's also a redistribution of wealth in the wrong direction -- the rich would get a huge break, while those who are already struggling would pay more. How would this happen if no one is paying income taxes? Because the poor would have to start paying a higher percentage of their income. As Rachel explained on the show a while back, "A sales tax is therefore among the least populist ways of raising money for government, proportionally speaking. It takes the most from people with the least money, and the least from everybody who has more money."
State lawmakers are skeptical, but they're prepared to take a long look.
Gov. Bobby Jindal's controversial tax swap plan shouldn't be considered "dead on arrival," the chairman of the House Ways and Means Committee said Monday. Though the plan has been criticized by a variety of groups, Rep. Joel Robideaux said debate about the proposal is not over.
"If the governor is pushing something, it's never dead on arrival," Robideaux said at a Press Club of Baton Rouge event on Monday.
It's not a ringing endorsement, but it's not a rejection, either.
Hoping to sell his plan, the governor recently argued, "It's not a coincidence that states without any income taxes have grown faster."
This is, of course, an important argument. Jindal thinks the state economy will grow if income taxes are eliminated. But is this true? I'm glad you asked.
Dylan Matthews recently took a look at the issue.
This isn't unheard of at the state level. Seven states -- Alaska, Washington, Nevada, Wyoming, South Dakota, Texas, and Florida -- lack any individual income tax, while Tennessee and New Hampshire only tax interest and dividends, leaving wage income untouched. That means we have a fair bit of information on what differs between states that tax income and those that only tax sales (including tobacco, alcohol, etc.) and property. So what do we know about abolishing income taxes?
The Institute for Taxation and Economic Policy, a left-leaning think tank, estimated in its "Who Pays?" report, which regularly tracks the distributional impact of state tax policies, that states without income taxes place a higher tax burden on the poor and a lower burden on the rich than states with income taxes.
The regressive nature of these tax policies is hard to miss, but for Republicans is ultimately irrelevant. This isn't about progressive taxation; it's about economic growth.
Unfortunately, the evidence doesn't really bolster this argument, either. The Institute for Taxation and Economic Policy found (pdf) very little difference between states without income taxes and states with them.
Jindal seems to think a tax plan that rewards the rich and punishes the poor will boost his political standing and improve Louisiana's economy. In reality, his support is dropping and his plan won't help the state's economy much at all.
I realize the governor is trying to boost his stature in advance of a national campaign, and wants to be able to tell Republican primary voters he scrapped income taxes in his state. But his proposal just isn't a good idea.