Gov. Bobby Jindal’s strict interpretation of holding the line on taxes – they don’t go up, even if that means keeping unproductive tax breaks, unless there’s some relief elsewhere – has had to his point the very salutary effect of putting right-sizing government ahead of tax increases, but includes the less fortunate impact of treating tax breaks that do not demonstrably impact economic growth in a positive or efficient way as the same as those that do. This attitude seems to have changed as last week his administration announced that portions of these breaks should be eliminated.
In other words, if a credit or deduction means, after payment of state taxes, that a filer would get some kind of rebate beyond its liability as a result of these, the Jindal Administration has proposed that the state hold onto this excess. The meets the no-tax-increase criterion in that taxes would not go up, but only that a bonus which technically is an expenditure that the state hands out would disappear.
At this time, the nebulosity of the idea defies any definitive count on expenditure savings, and leaves other questions unanswered. For example, would that include the state’s practice of buying back at a 15 percent discount of its Motion Picture Investor Tax Credit? If so, even as that would have a minimal impact on FY 2016 as typically it’s some time before the accounting is completed for film production in a year, that would cut down drastically on the program’s expenses – and lure to outside producers – as for most productions these qualify for far more in credits than their Louisiana tax liability, with them selling these to other state taxpayers or to the state, with the majority of the amount bought back by the state. That would completely – and welcomely – alter the nature of the program, which those interested in stamping out government waste have argued vociferously to rein in if not discontinue while the few who benefit from it fight tooth and nail to let the gravy train for them continue, as do some lawmakers whose district disproportionately have funds leveraged by this giveaway enter into their districts.
This also introduces political dynamics where a blanket approach to retain these funds may not work. For example, one of the largest such credits in dollar terms in the Earned Income Tax Credit, which pays money to people above and beyond their tax liability who work. While designed to encourage work as a kind of salary supplement, all it tends to do is attract people to low-skill jobs and acts as an inhibitor to their taking more hours or in trying to advance in their skills and occupations. As such the EITC inefficiently spends taxpayer dollars, but as it acts as a kind of handout that pays above the actual worth of the work done and transfers wealth mainly to lower-income households, some policy-makers fiercely protect it.
And this support matters, for at this time no one really knows what would have to be done to get rid of these, even temporarily. While the Constitution permits the Legislature to suspend a law by the same margin required to make it law, debate rages around the Capitol about how it all works. Legislators could suspend these provisions for the fiscal year, but whether they could do so by a simple majority (for a number of reasons, including statutory definition of whether such revenues are recurring, a House rule addressing the same, and if the Legislature wants to change the decision rule about classifying such revenues) does not seem clear at this time.
If simple majorities can suspend, the Legislature could go further and wipe out not just the “extra” portion that the Jindal Administration has signaled it would countenance excision, but entire credits temporarily. This could cause intrigue between different factions in the Legislature and also with Jindal over procedures. At the same time, it also presents Jindal with a political sidestep to his no-tax-raise pledge, for he could say he did what he could and held the line on any increase not offset by a decrease elsewhere but that as the Constitution allows for suspensions without a governor’s input, these can get through and he would not face responsibility for potentially politically-damaging cuts to services that otherwise would have to happen without the extra revenues from the suspensions.
It all adds up to some convoluted machinations in the months ahead. They begin at the end of this month when the legal gubernatorial presentation of the budget occurs, and what decision rules subsequently get adopted will influence greatly what solutions come forward.