Louisiana governor Bobby Jindal swapping income for sales tax

From Cato’s Daniel Mitchell comes the good news that Louisiana’s Governor Bobby Jindal has proposed elimination of his state’s income tax. From the Governor’s website:

“Over the last ten years, more than 60 percent of the three million new jobs in American were created by the nine states without an income tax. Every year for the past 40 years, states without an income tax had faster growth than states with the highest income taxes.  Economic growth in the nine states without income taxes was 50 percent faster than in the nine states with the highest top income tax rates.  Over the past decade, states without income taxes have seen nearly 60 percent higher population growth than the national average.”

Governor Jindal continued, “While we have reversed the more than two-decade problem of out-migration, we can do more to keep people here. Here are a couple of staggering statistics. Between 1995 and 2010, according to IRS data, Louisiana lost $3 billion in adjusted gross income to Texas. Over that same time period, Louisiana lost over $6 billion in adjusted gross income to other states. Louisianians deserve better.  In order to increase Louisiana’s competitiveness and make our state even more attractive for companies who want to invest and create opportunities in Louisiana for our people, we must overhaul our tax code.

The Governor also claims six benefits for his state’s citizens, many of which are in line with Tea Party Patriots’ values:

“First, eliminating income taxes will give more control to the taxpayer. Taxing what people spend instead of what they earn gives taxpayers more control over 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.

“Third, in our plan, everyone will pay their fair share, but no more than that. Fourth, our plan will close special interest loopholes. Powerful special interest groups will no longer be able to rig the system. For far too long average Louisiana citizens have felt the state’s tax code works for the rich and powerful, but not for them. By closing special interest loopholes, we level the playing field for everyone.

“Fifth, we are going to protect food, prescription drugs and utilities from increased sales taxes. Sixth, and finally, by switching to a state sales tax base, there will be more stability in funding for government services. Stability breeds confidence. Switching to a more stable tax base can smooth out many of the rough edges and stabilize state budgeting, and stability in government attracts businesses and creates good jobs.”

The plan itself is fairly complex, with a rebate given to low-income families, for one example. A variety of industries – food for home consumption and utilities, for example – are exempt, and the state sales tax rate will increase. Internet sales will be taxed, and a new Commission will be created for that purpose.

According to Mitchell, the plan can be summarized thusly: “This is a superb plan.”

Update: Tea Party Patriots reached out to Governor Jindal’s office with four questions about the proposal. His press staff responded this afternoon. The questions and responses are below.

1. The proposal exempts food for home consumption, utilities and other areas, and has at least two rebates for lower-income earners. While this negates accusations (and realities) related to the regressive nature of a sales tax, does it also burden wealthier earners more as compared to the current tax code? And does it leave the wealthy more burdened once the plan is implemented, period?

Under the current tax system, Louisianans pay more than $2.4 billion in personal income tax, most of which is paid by middle and higher income individuals and families.  The repeal of the personal income tax would not only free them of this tax liability, but also of the administrative burden of filing annual state income tax returns. Our economic models show that all Louisianans will be better off through the elimination of the personal income tax and creation of the rebate programs, because it ensures that everybody pays their fair share, but nothing more.

2. At least one agency is created under the proposal. How does the governor plan on offsetting the funding requirements for this agency?

The Louisiana Sales and Use Tax Commission would not require any new funding because it would be supported through self-generated funds.  Moreover, the Louisiana Department of Revenue (LDR) would allocate to the Commission funds and resources LDR currently uses to collect sales and use tax.

3. What are the biggest three ways your plan differs from the Fair Tax plan?

Like the Fair Tax plan, Governor Jindal’s tax reform proposal replaces an income tax with a consumption based tax. However, the Governor’s tax reform proposal differs in a few ways from the Fair Tax plan.  First, Louisiana must account for purchases made out of state and therefore will require residents to file and pay a use tax.  Second, the Family Assistance Rebate Program and other rebate programs will use a different rate schedule than the “prebates” used by the Fair Tax plan.  Third,  Governor Jindal’s tax reform proposal excludes healthcare and legal services, as well as food for home consumption and prescription drugs, from its sales tax base.

4. The proposal itself seems pretty complex. Does it simplify the state’s tax code overall?

Absolutely. Louisiana’s current tax code includes numerous taxes (personal income, corporate income, corporate franchise, sales, severance, excise) and more than 460 exemptions.  Governor Jindal’s tax reform plan would eliminate three types of taxes (personal income, corporate income and corporate franchise) and more than 200 exemptions.  Moreover, the Sales and Use Tax Commission would promulgate rules and regulations on sales tax issues for the whole state, which in turn would create uniform rules (as opposed to different rulings in each parish).