Jindal proposes eliminating Louisiana income and corporate taxes

Remarkable news from the New Orleans Times-Picayune, as Louisiana’s governor moves toward something resembling the “Fair Tax” for his state:

Gov. Bobby Jindal is proposing to eliminate Louisiana’s income and corporate taxes and pay for those cuts with increased sales taxes, the governor’s office confirmed Thursday. The governor’s office has not yet provided the details of the plan.

“The bottom line is that for too long, Louisiana’s workers and small businesses have suffered from having a state tax structure that is too complex and that holds back economic prosperity,” Jindal said in a statement released by his office. “It’s time to change that so people can keep more of their own money and foster an environment where businesses want to invest and create good-paying jobs.”
Jindal said the plan would be revenue-neutral and that the goal would be to keep sales taxes “as low and flat as possible.”

(Emphasis mine.)  There is, however, skepticism about just how low and flat that tax might be, as some estimates say the sales tax would need to rise from 4 to 7 percent.  According to the Shreveport Times, Jindal “met with key legislative leaders and cabinet members at the Governor’s Mansion Wednesday” to discuss several different scenarios for raising the sales tax, while eliminating various exemptions.

7 percent still isn’t too bad, compared to the tax rates in many other states, and the elimination of income and corporate taxes might make it palatable to Louisiana voters.  The sales tax rates in neighboring Texas, Arkansas, and Mississippi are 6.25, 6.00, and 7.00 percent, respectively.

It’s an interesting development following Virginia Governor Bob McDonnell’s proposal to eliminate his state’s gasoline tax, in concert with increased sales taxes.  Proponents of the “Fair Tax” advocate replacing most federal taxes with a consumption-based national sales tax; these initiatives might be seen as testing the waters for such an idea, or at least providing some interesting data for future discussion.

Jindal explained the virtues of shifting other burdens to the sales tax in his statement:

Eliminating personal income taxes will put more money back into the pockets of Louisiana families and will change a complex tax code into a more simple system that will make Louisiana more attractive to companies who want to invest here and create jobs.

Tax reform will remove administrative burdens from families and small businesses and improve Louisiana’s business prospects; create more business investment opportunities with increased job growth; and raise the state’s profile in national business rankings.

A sales tax is simple, and very obvious – taxpayers see it all the time, and become very sensitive to increases.  Everyone who buys anything pays it.  Those who buy more, pay more.  And unless the sales tax is packed with a lot of special exemptions – which sounds like the opposite of the plan Jindal has in mind – it’s not as manipulative.  The government has a harder time using the tax code as an instrument for managing the populace, which really shouldn’t be its purpose anyway.