Governor Landry is right: Louisiana needs tax reform
by Briley Wilkerson, Louisiana State University Student and Louisiana Progress College Fellow
Governor Jeff Landry wants tax reform. He made it clear during his campaign for governor in 2023, over the course of his first year in office when arguing for a constitutional convention, and by choosing Richard Nelson, a proponent of eliminating the state income tax, as his Secretary of the Department of Revenue. Beyond Gov. Landry, members of the legislature have been calling for tax reform for years. And they are all correct, we need to reform our tax system.
Growing up as a son and grandson of educators, I keenly remember the Bobby Jindal era in our state. Like Landry, Jindal was a prominent supporter of tax reform, particularly a type of tax reform that reduced taxes for the wealthy and simplified Louisiana’s tax code. Under his leadership, our tax code became more favorable to large corporations, with the goal of growing the economy. But instead it resulted in Louisiana facing a catastrophic $1.6 billion budget shortfall, which has had long-lasting economic consequences.
As a 12-year-old kid I was forced to worry about how these “historic” and “devastating” cuts would affect my family’s livelihood, including whether or not I would be able to attend college. The Taylor Opportunity Program for Students, which provides college scholarships for in-state students, and other aid programs, were slashed. My community, which was filled with teachers, firefighters, and police officers, experienced stagnating pay, and our state's most important institutions were left with significantly fewer resources. With the legislature now convening to take up these tax reform proposals, I can’t help but feel deja vu.
Louisiana faces what the Landry administration projects to be a $787 million deficit next year. The administration has explicitly stated that one of the main reasons for a special tax session is to deal with the current fiscal cliff. The decisions the legislature makes over the next couple of weeks will affect our state for decades to come and, given our history with regressive taxation, those decisions could have significant negative consequences. Within this extremely small window of time, the risks cannot be properly analyzed. There is a strong possibility that passing these reforms just kicks the can of the fiscal cliff down the road. The Landry administration believes that simplifying our tax code and cutting taxes for the richest entities in the state will produce large pieces of new revenue. Although our tax code may be comparatively complicated, the structure is already heavily favorable to corporate interests.
Louisiana has the largest corporate tax exemption program in the country in the Industrial Tax Exemption Program (ITEP). Specifically, Louisiana gives away ten times more in corporate subsidies per capita than the national average. This makes us a huge outlier, not just in the south, but in the entire country. ITEP allows manufacturers to avoid paying the bulk of the local taxes they should owe, and significantly lowers their overall tax burden. That’s billions of dollars that could be going to schools, roads, hospitals, and other local needs. This program is also representative of how our state treats tax exemptions as a whole.
Over the past 20 years, tax exemptions have become a larger and larger part of Louisiana’s budget, with our tax exemption budget growing by more than $6 billion dollars, which constitutes a 400% increase, for a total of almost $7.5 billion in 2023 (pg 23). Forgoing revenue at this scale has led to billions of dollars in cuts to higher education, healthcare, infrastructure, and other services that are essential to growing our state.
One of the main reasons the tax exemption budget has grown exponentially is the lack of accountability and oversight. ITEP is controlled through the Louisiana Economic Development (LED) board, which approves almost all applications. This agency, along with the Louisiana Department of Revenue, are charged with the program’s evaluation. However, these evaluations do not provide detailed cost-benefit analyses, making it difficult to judge the actual effectiveness of the exemptions. Also, the current systematic structure of the evaluations are problematic because LED is funded for the purpose of economic development, and negative findings may reflect poorly on the agency. As a result, ITEP and many other incentive programs have become aimless, and have failed to align with their intended purpose. To economically compete in the future, Louisiana must modernize its tax exemption evaluation process.
Other southern states, such as Florida and Mississippi, have passed more stringent tax exemption evaluation laws and seen beneficial results. The main difference between our evaluation process and our southern neighbors is that in those other states independent agencies are tasked with evaluating tax exemption programs. In Florida, the Office of Economic and Demographic Research and the Office of Program Policy Analysis and Government Accountability conducts these evaluations. In Mississippi, it’s the University Research Center. Louisiana can do this as well, and has done it with other tax incentive programs. In 2020, the legislative auditor thoroughly reviewed the Quality Jobs Program in Louisiana and found the program could be more cost-efficient.
The evaluation timelines are also different. Florida and Mississippi evaluate existing tax exemptions every four and five years, respectively. This gives independent agencies time to thoroughly analyze a program’s effectiveness. On the other hand, in Louisiana we evaluate ours once a year, making those reports fairly superficial.
These tax incentive evaluation laws have increased revenues in Florida and Mississippi by giving their state legislatures comprehensive information about the effectiveness or ineffectiveness of tax exemption programs, while also making their economic strategies more efficient. Specifically, the neutral evaluators contextualize the legislative intent for each tax incentive program. If an incentive is not working as intended, the evaluators will recommend changes that align it with the particular state's overall economic strategy.
The main argument for these exemptions is that they provide jobs and economic growth. While it is true some strategic tax incentives accomplish that goal, Louisiana’s approach is ineffective and unsustainable. Our tax exemption budget has averaged almost $7 billion in the past 5 years (pg. 25), higher than any point in state history, yet our GDP has shrunk. Louisiana is also one of the fastest shrinking states in the country in terms of population. Since 2020, Louisiana has lost nearly 100,000 residents, with economic opportunity cited as one of the most important contributing factors. The complicated nature of our tax system is clearly a problem for our state.
The Landry administration is calling for cutting some large state tax credit programs. However, they are leveraging these programs not to fund primary and higher education, or healthcare, but as a way to further reduce tax rates for large corporations. They are advocating for a plan that would flatten individual income tax and corporate tax rates. Essentially, this means that a teacher, police officer, or firefighter could hypothetically pay the same tax rate as Exxon Mobil, which brought in profits of $36 billion in 2023. Other proposals include eliminating the corporate franchise tax, expanding the sales tax base, and eliminating some loopholes on taxes usually paid by individuals.
Simply put, if lower corporate taxes equaled a stronger, more prosperous economy, Louisiana would be the most prosperous state in the country. This also begs the question; will making our tax code more favorable to wealthy individuals and corporations, and sacrificing hundreds of billions of dollars of revenue at the same time, produce an economic boom, as the Landry administration claims? History is not on our side. The immense cost of state corporate subsidies, and our prior budget issues, should be important considerations when evaluating a tax reform plan in Louisiana.
Giving away the house to wealthy elites at the expense of educating and training workers, providing higher wages, and building better infrastructure will probably not be a valuable trade-off, given our state’s current weaknesses. Our tax system is regressive as it is, meaning working families pay a higher proportion of their earnings in taxes than wealthy families. The Landry administration’s plan compounds this imbalance. Our state also has attempted corporate welfare at the largest scale in the United States and seen little to no economic and social benefit. A plan that reins in irresponsible spending by modernizing our tax exemption evaluation process, while avoiding more devastating cuts to our most important institutions, can actually accomplish the Landry administration's stated goal of growing the economy and our state’s population.
