However, every day it seems that you’re hearing from someone
else making headlines by criticizing Governor Jindal’s tax swap plan. Whether
it’s a Legislator, former Governors Blanco and Edwards, or 250 members of the Clergy, they all say the same thing: the tax swap idea will unfairly impact the
poor.
They’re calling the plan “Regressive”.
But, guess what? They’re wrong.
While I don’t want to disagree with two former Democratic
Governors and 250 Clergy members, they’re using flawed math and faulty logic to
make their point. And, truthfully, I don't know what former Governor Kathleen Babineaux Blanco's point was. Sorry KBB, don't think that "the whole state is going into meltdown" either and, after the "meltdown" you had after Hurricane Katrina, I don't know how you can say that word with a straight face.
Now, before we get too far ahead of ourselves, let me
preface this column by stating that I am not an Economics Professor or an
Accountant.
That being said, simple economics would tell you that, if
you eliminate the state income tax, you would have more money in your pocket to
spend, save or invest as you wish. How can that be “regressive”?
$22.56 or $1,200: It’s Your Choice
Currently, an individual earning between $12,501 – 50,000 annually,
is subject to a 4% state income tax, before deductions. If you earn $30,000 per
year, that’s equal to $1,200.
Remember that $1,200 number.
If you were to spend that $1,200, the proposed state sales
tax increase from 4% to 5.88% would cost you a whopping $22.56.
So, would you rather have $1,200 in your pocket and have it
cost you $22.56 if you spent it, or let the state keep taking money out of your
pocket each paycheck?
But, the $22.56 tax cost doesn’t begin to tell the whole
story or the tax swap’s impact on low-income individuals and families.
The fact of the matter is, low-income people have less
disposable income than higher-income households. Seems logical right?
Low-income households spend a higher percentage of their
income on “basic needs” (housing, automobile cost and usage, groceries). In fact,
it’s estimated that low-income households spend 80 – 90% on “basic needs”. That
leaves 10 – 20% of their remaining income as “disposable”.
Since the “basic needs” of housing, automobile cost and
usage, and groceries, aren’t subject to sales tax, and won’t be subject to
sales tax under Governor Jindal’s plan, the impact of the tax swap is further
minimized for low-income households.
Going back to our $30,000 example, if that household has 20%
left over after their “basic needs”, they would have $6,000 in available
disposable income.
If they spent that entire $6,000 in disposable income, the state sales tax
increase proposed by Governor Jindal would cost the household an additional $112.80.
Again, would you rather have $1,200 in your pocket and have
it cost you $112.80, or let the state keep taking money out of your pocket each
paycheck?
But, Higher-Income Households Pay Less Taxes, Right?
How you answer that question may likely determine whether
you are a Democrat or a Republican.
While it may be true that higher-income households may pay a
lower percentage of the tax increase, that fact is offset by their
corresponding higher percentage of disposable income.
Higher-income households typically spend 40 – 60% of their
income on “basic needs” compared to the 80-90% that we mentioned above for
lower-income “basic needs” spending.
Thus, if a household earns $100,000 per year, that would
leave $40,000 – 60,000 available as “disposable” income.
If that entire amount were to be spent within Louisiana,
that would yield $752 – 1,128 in new sales tax revenue due to the proposed
increase.
In terms of real dollars, even at the low end, the new sales
tax revenue produced by a higher-income household is over 6 times what a
low-income household would yield.
Even if that figure were to be cut in half to account for
savings, it would still dwarf the impact on low-income households, and higher-income
households would have an additional $6,000 from the elimination of the personal income tax (currently 6% on everything over $50,000) in their pockets to spend, save or
invest their money.
Since higher-income households open businesses and hire
employees, the impact of eliminating the state personal income tax along with
the corporate and franchise taxes, should lead to increased employment and,
potentially, increased wages – a win-win for low- and moderate-income
households.
The elimination of the corporate and franchise taxes will
also make Louisiana more competitive economically with other states, which
should lead to even more jobs.
Did You Say Loopholes And Tax Exemptions?
Now, admittedly, the Governor is proposing to install sales
tax on a host of services not previously taxed. While I agree that loopholes
and tax exmptions should be closed, all loopholes and tax breaks should be
eliminated. It is not fair to anyone if some industries get tax breaks while
others do not.
We’ll have more on the tax loopholes and exemptions as they
become detailed. Trust me, all of the special interest groups attached to
services that will now be taxed under Governor Jindal’s plan are just starting
to make noise. Just wait until the legislative session actually starts.
The Tourist “Trap”
Since a large portion of Louisiana, particularly New Orleans
and South Louisiana, relies on the tourism and hospitality industries to drive
their economies, many have questioned the impact of Governor Jindal’s plan on
tourism.
Don’t believe the hype here either.
When you sit down with your family to discuss where you are
going on vacation have you ever said, “Honey, I don’t think we should take the
kids to Disney World this year. The sales tax is just too high.”
No? Me neither.
When you book your hotel room, in most cases, you don’t even
know the amount of taxes you’re paying until you check out – and then it’s too
late.
The amount of local sales taxes, even Hotel/Motel taxes, is
rarely, if ever, a consideration for a vacationer or a business traveler
attending a convention.
According to a survey by the Global Travelers Association,
New Orleans isn’t even in the Top 10 list of cities with the highest daily
taxes for travelers. Even including Governor Jindal’s proposed state sales tax
increase, New Orleans still won’t crack the Top 10.
In fact, New Orleans won’t even be at the same level as that
tourist mecca down I-10 called Houston or other tourism hot spots like
Cleveland, Minneapolis and Kansas City.
Let’s see: should we go to New Orleans for Mardi Gras or
visit Minneapolis this year?
And, don’t even put New Orleans in the same category as the
Top 3 most taxing cities for tourists in the USA: Chicago, New York City and
Boston.
No, the state sales tax increase will have ZERO effect on
tourism, business travel and conventions.
Regressive? I Resemble That Remark
Again, I’m not an Economics Professor or an Accountant. However,
on an individual basis, if you call keeping more of your money in your hands to
do as you wish with it, instead of handing it over to the government in every
paycheck, “regressive” – then slap my face and call me “regressive” too. 