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Sharp decline in state tax revenue during Jindal years bucks national trend

27th September 2013   ·   0 Comments

By Tyler Bridges
thelensnola.org

Tax collections in Louisiana have dropped sharply during Gov. Piyush Jindal’s 5½ years in office, a trend that runs counter to most other states, according to an independent research institute’s analysis.

State estimates show that Louisiana tax collections won’t regain their previous peak, which occurred when Jindal took office in 2008, until sometime after 2017.

That may be music to the ears of conservatives like Jindal cheerleader Grover Norquist, the low-tax absolutist. From their perspective, choking off tax revenue is a way to “starve the beast” of big government, leaving more money in the hands of consumers and businesses.

That’s exactly what the Jindal administration has tried to do, according to Stephen Moret, Jindal’s head of economic development.

But lower tax collections also mean less money for investments in public infrastructure, including hospitals, schools and universities — and Jindal’s popularity has suffered from cuts to these programs, polls indicate.

Lower tax collections in times of economic recovery also leave the state with less money to cushion the next downturn or recession.

Two of the state’s most prominent economists — Greg Albrecht, the chief economist for the Legislative Fiscal Office, and Louisiana State University economist Jim Richardson, of the four-member Revenue Estimating Conference that certifies state tax collection figures — attribute the reduced tax collections in part to economic factors outside Jindal’s control. These include a drop in oil prices and also to the tapering of post-hurricane spending. But they note that the governor has supported fresh tax cuts while failing to rein in tax breaks for industry and the well-to-do.

Either way, Louisiana’s sharp divergence from the tax revenue trend in other states raises a question: whether Jindal’s economic policies — which favor lower taxes, less government spending and tax breaks for companies willing to invest in the state — are lifting Louisiana up, as the governor frequently claims.

“We don’t have the revenue we need for the things we need to pay for,” said state Rep. John Bel Edwards, D-Amite, who has announced plans to run for governor in 2015.

Louisiana’s tax collections peaked at $12 billion in 2008, as the global economic crisis worsened. But while revenues in most states rose with the economic recovery and now exceed pre-crash levels, by April 2013 Louisiana tax collections were still 12.5 percent lower than in 2008.

Among the other 49 states, combined tax collections were 7.9 percent higher in April 2013 compared to January 2008, according to an analysis by the Nelson A. Rockefeller Institute of Govern­ment, which is part of the State University of New York.

Along with the general rise in revenue expected as the national economy strengthens, “some states have increased tax rates, especially California,” said Lucy Dadayan, a senior policy analyst for the Rockefeller Institute.

How much a state collects is often cited as a measure of its economic vitality. An ample revenue stream gives a state leeway to offer targeted tax cuts that further strengthen business development while funding investment in public infrastructure such as roads and bridges, schools, colleges and public health.

But with Jindal opposing even the smallest tax increase to offset the revenue decline, Louisiana has had to sharply reduce such spending. The budget for higher education, widely regarded as an engine for economic development, has been slashed by 66 percent during Jindal’s years, with tuition increases offsetting only some of the shortfall. State spending for colleges and universities has plummeted from $1.5 billion in 2008 to $525 million in the current fiscal year, or from 17.6 percent of general appropriations in Jindal’s first year to 6.7 percent for the current fiscal year.

The last major state poll, released in early April, showed strong public dismay with the spending cuts to health care and higher education. Jindal’s popularity has swooned accordingly.

Moret, secretary of Louisiana Economic Development, defends the administration’s policies and says they are bearing fruit.

“We set out on a course in January 2008 to grow the private sector economy, give Louisiana citizens an opportunity to find jobs here at home, and make government live within its means,” Moret wrote in an email to The Lens. “We judge the strength of our policies by the growth of the private-sector economy, not the government economy. By any reasonable measure, Louisiana’s economy has outperformed that of the South and U.S. since January 2008.”

But some measures, besides the drop in tax collections, suggest that the economy is less robust than advertised. Since December, for example, the unemployment rate in Louisiana has been rising, while the national rate has been dropping.

Economists note that Jindal took office a month after the Great Recession officially began. The economic downturn slammed tax collections in all states, but it hit Louisiana a little later for two reasons. One is that energy prices peaked in 2008, extending the bonanza from oil and gas revenues that had been flowing into state coffers. Second, an influx of federal recovery dollars and, to a lesser extent, post-Katrina insurance settlements kept the economy flush and helped swell state coffers as the recession dug in.

That means Louisiana’s 2008 tax collections were artificially high, economists say. “It was a peak for unusual reasons,” said Albrecht, of the Legislative Fiscal Office.

Since 2008, energy prices have dropped and the post-hurricane recovery spending has waned, eroding tax revenue.

Also contributing to the loss of revenue: the state Legislature cut personal income and business taxes, first under Governor Kathleen Blanco and then under Jindal — measures that mostly favor wealthier taxpayers and businesses. Among these measures was repeal of the Stelly Plan, which had made the state less dependent on sales tax, an income stream considered regressive because it hits low-income residents harder than the rich.

“The Governor and Legislature did not cause this drop in revenues except for doing away with Stelly and other taxes, but they passed the tax cuts way before they knew about the recession, etc.,” Richardson, the LSU economist, wrote in an email to The Lens.

Albrecht estimated that the combined tax cuts cost the state treasury $650 million per year, with the Legislature approving about half of the reduction in tax revenue while Blanco was governor and the other half under Jindal.

Meanwhile, tax breaks, such as the inventory tax credit, the horizontal drilling exemption and the motion picture industry tax credit, have grown dramatically under Jindal, Albrecht said. Under these programs, state government allows companies to apply tax credits to lower their tax burden. Or the state simply writes checks to companies willing to invest in Louisiana.

“When you cut taxes, you get less tax revenue,” Dave Norris, director of Louisiana Tech’s Enterprise Center, said in an email. “At the state level, lower tax revenue means we must cut spending accordingly to balance the budget. That’s what has happened in Louisiana since 2009.

“Those lower tax receipts — which conservatives applaud — have left us unable to continue investing at the levels necessary in healthcare, education, and infrastructure. That’s the other side of the story. Paying less in taxes is good. Neglecting essential public investment in healthcare, education, and infrastructure is not.”

It’s unclear when Louisiana’s tax revenue stream will return to the 2008 level. The Revenue Estimating Conference’s five-year projection shows tax collections rising from $9.8 billion in 2013 to $10.9 billion in 2017, still $1.1 billion below the 2008 peak.

The Rockefeller Institute analyzed tax collections for each of the states from their peak level through the state’s fiscal year 2012. The results showed that Louisiana’s tax collections drop­ped 21 percent from their 2008 peak, more than any other state except Arizona, which underwent a similar drop.

State tax revenues have risen slightly since June 30, 2012. Tax collections increased by 7.8 percent during the first three quarters of fiscal year 2013 (July 1, 2012, to March 31, 2013) compared to the first three quarters of fiscal year 2012, Dadayan said.

She pointed to a strong 13.6 percent increase in Louisiana’s personal income tax collections, even as sales tax revenue decreased over that period by 0.7 percent. But the uptick may be temporary. Dadayan said income tax collections increased because “many taxpayers accelerated income into 2012 in anticipation of increases in federal tax rates.”

This article originally published in the August 12, 2013 print edition of The Louisiana Weekly newspaper.

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