Jindal’s model for tax reform

By Grover G. Norquist and Patrick Gleason
March 14, 2013

With dueling budgets being introduced on Capitol Hill this week, the possibility of tax reform is the talk of Washington. As we predicted before last November’s elections, tax reform will be on the agenda in 2013 – but has its best chances in the states. We are seeing that demonstrated Thursday by Louisiana’s Republican governor, Bobby Jindal.

Jindal unveiled what could be, if approved by the legislature, the boldest, most pro-growth state tax reform in U.S. history. His plan, outlined in Baton Rouge this morning during a joint meeting of the House Ways and Means Committee and the Senate Revenue and Fiscal Affairs Committee, calls for the elimination of all state personal and corporate income taxes, as well as the state franchise tax on capital stock. This would be replaced by an increase in the state sales tax rate to 5.88 percent, up from 4 percent. The sales tax would also apply to a broader base of goods and a number of services previously untaxed.

Many governors around the country have proposed rate-reducing tax reform, but Jindal’s plan sets a gold standard for pro-growth reform. His proposal could mean more disposable income for families while increasing the job-creating capacity of employers across the Pelican State.

It would also make Louisiana’s tax code more conducive to economic growth. A recent Organization for Economic Cooperation and Development report ranked taxes according to their negative economic impact. The study concluded that taxes on income and capital, which Jindal’s plan would eliminate, were the most damaging.

Louisiana ranked 32nd on the nonpartisan Tax Foundation’s 2013 State Business Tax Climate Index. If Jindal’s plan is approved and signed into law, the state will jump to No. 4 on that index.

Jindal’s proposal is a model not just for other states but also for lawmakers on Capitol Hill. His plan adheres to the conservative principle that the tax code should not be used to pick winners and losers in the economy. It demonstrates that the purpose of real tax reform is to make the tax code more efficient and competitive – not to raise additional revenue. Jindal’s plan creates a predominantly consumption-based tax system and does so in a way that he estimates will raise the same amount of revenue for the state as current law.

President Barack Obama and congressional Democrats appear to view tax reform as a vehicle for higher taxes. The White House and folks at MSNBC would have one think that House Republicans have become extremists for insisting that tax reform not result in a net tax increase. Yet back in 1986, the last (and, many contend, only) time Washington passed comprehensive tax reform, there was bipartisan consensus that it should be revenue-neutral.

Then-Senator Bill Bradley (D-N.J.) and then-Ways & Means Committee Chairman Dan Rostenkowski, a Democrat from Chicago, agreed with President Ronald Reagan that reform should clean up the tax code – not be a Trojan horse for higher taxes. This is what Jindal’s proposal would do.

Tax reform is one of the most politically difficult undertakings for lawmakers. It becomes almost impossible, however, when the public perceives it as a covert attempt to raise taxes.

Georgia offers a cautionary tale. Two years ago, state legislators introduced a reform package that would have significantly cut the state income tax – particularly important, since the state is flanked by two states with no income tax – while increasing reliance on sales tax. There was one major problem: The plan as a whole resulted in a multibillion-dollar tax increase. Fellow legislators, and the public, revolted against it.

Though the Georgia plan was reworked so it was no longer a net tax increase, the damage had already been done. In the end, it failed to pass. While some Republicans, including former Florida Governor Jeb Bush and Senator Lindsey Graham (R-S.C.), are asking the GOP to repeat this folly at the national level, Jindal is wisely not making this mistake in Louisiana.

The national media and Acela-corridor crowd continue to focus on the bickering Washington, but they can learn what real tax reform looks like by looking to Louisiana.

 

 

PHOTO (Top): Governor Bobby Jindal speaks during the Republican Leadership Conference in New Orleans, Louisiana June 17, 2011. REUTERS/Sean Gardner

PHOTO (Insert A): A Louisiana Individual Income Tax Return form is seen in a screen capture image.  REUTERS/Louisiana Department of Revenue/Handout

PHOTO (Insert B): President Ronald Reagan addresses a news conference in Washington, Octover 19, 1983. REUTERS/Mal Langsdon

18 comments

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since corporations are people now, too, then they should also be subject to consumption tax as jindal proposes. that would probably lower the rate to under 1% overall to achieve the same tax input to the state – now that would be a fair, across the board method. but fairness has never been the goal here. let’s be frank – this is another attempt by the gop to placate the wealthy and large corporations who feel they should not have to pay any taxes at all. this merely shifts the majority of tax burden onto the middle and lower classes, where most of the consumption comes from. let’s call it what it is, not some bold, grand plan but just more of the same old gop bull.

Posted by jcfl | Report as abusive

furthermore, the writers assumption that reaganonmics was such a wonderful thing needs clarification. during the 12 reagan/bush1 years the percent of deficit to gdp rose rapidly from 33% in 1980 to 66% in 1994, with the 1987 crash being the bellweather proof for that period being far less positive than we are led to believe by the gop. why do we continue to be smothered with theories already proven false? because that is the smoke and mirrors to the real goal – elimination of taxes on the wealthy and large corporations, and elimination of all public programs.

Posted by jcfl | Report as abusive

State income taxes on top of federal income taxes not only increase tax burden but also complicate tax code, feeding tax preparation professionals and their powerful lobby. Jindal is doing a fine job and this step is in the right direction.

On the corporate side, corporate growth creates jobs and eventually people holding those jobs pay consumption taxes. one could always consumption tax unfairly penalises the poor but remember, one needs to create wealth first before distributing it.

Posted by VarunGupta82 | Report as abusive

If I were Jindal, I would not place too much emphasis on Grover Norquist. His endorsement that Jindal’s plan could be the boldest, most pro growth state tax plan in history is even more BS than Lil Booby is trying to foist on the people of Louisiana. Those who pay nothing because of tax loopholes will continue to pay nothing. Those who pay nothing because the are classified as “vulnables” will continue to pay nothing. Those who get up and go to work each day, pay their taxes, and live by the rules will take it up the butt….AGAIN!

Posted by Kilr | Report as abusive

@jcfl,

“let’s be frank – this is another attempt by the gop to placate the…large corporations who feel they should not have to pay any taxes at all.”.

No, let’s be truthful. A corporation is but one form of business. It is no more oppressive or benevolent than a sole proprietorship, partnership, limited partnership, etc.

Each form of business has differing tax advantages and disadvantages, but one thing they all have in common. Any taxes they pay become a deduction dollar for dollar between their gross income (total revenue coming in) and their net income (that which is left after deducting expenses).

All businesses’ expenses, including “taxes”, are included in the price they charge for their product(s) or service(es). In the end it is always the public that actually corporate/business taxes, even though such payment is indirect and seldom deductible. In this manner the public pays, in many cases, “tax on tax” without complaint.

Is that so hard to see and understand?

Posted by OneOfTheSheep | Report as abusive

Revenue is irrelevant to the goal of tax reform. The budget demands either more revenue or less spending, totally independently of the taxes necessary to fund it. The Republican goal of eliminating income tax is a great idea, but may not be completely plausible. A consumption tax is clearly pro-growth, and has been forever the recognized means for funding government. With a tax on high-incomes only, a consumption tax would be effective in funding the federal government while not inhibiting growth.

Posted by Sarasota | Report as abusive

The Reagan myth is that he lowered taxes but he raised taxes and increased the deficit.

Posted by OuterLimits | Report as abusive

Grover Norquist’s stated goal is to destroy the United States by shrinking the government until it can be “drowned in a bathtub”. Jindal etal are looking for a slower death by further shifting the burden from the rich to the poor. When the uber-rich, who already own most of the wealth, own it all, the United States of America will resemble plantation Louisiana.

Posted by xthespian | Report as abusive

@oots
the fact is that less than 40% of businesses of any form pay any income tax at all. my statement was that the gop cares only about large corporations and the wealthy – that comment still stands. your response is as nonsensical and off the point as usual.

Posted by jcfl | Report as abusive

Why on earth should Reuters publish anything from Grover Norquist? He is well paid for his extremist propaganda. Let him buy ad space.

Posted by QuietThinker | Report as abusive

His plan adheres to the conservative principle that the tax code should not be used to pick winners and losers in the economy.

ROFLMAO. His plan certainly picks winners. Corporations and the wealthy. The poor have to spend all they have to live. The wealthy don’t. They can send their surplus cash to the Caymans.

The sales tax would also apply to a broader base of goods and a number of services previously untaxed. One can just imagine the ‘services’ that would not be taxed.

But then, this is a typical Grover Norquist article.

Posted by pavoter1946 | Report as abusive

Same old crap from Norquist. Advocating to get his taxes lowered. One thing should be crystal clear. If Grover Norquist is heaping praise on a Republican’s tax reform plan, then you know the plan’s main intent is to cut taxes for the wealthy and lower revenues for government. Reduce the power of government, and corporations–those who pay Norquist millions–will fill the vacuum. Then we get to see how much influence “the people” have with company executives and Boards of Directors. It’s a great plan for doing away with democracy while making himself rich.

Posted by flashrooster | Report as abusive

Just in passing…Can anyone who commented tell me who employs them if not a corporation/company? And if you are really wanted to continue to punish corporations, do you take responsibility with all the current legislation that deters small business in America? And when that small Business hires more people it gets penalized? There is a bigger story here than the same ole diatribe than those ‘evil Corporations’. Reuters is under a Corporation. Taking them down too?

Posted by RobinGrace | Report as abusive

To @oots who said ”
10:06 AM UTC
@oots
the fact is that less than 40% of businesses of any form pay any income tax at all.”

I would appreciate it if you would back that statement up with facts. I don’t know any companies that get away with paying any taxes at all. Can you please publish their annual report links and Budgets .?

Posted by RobinGrace | Report as abusive

Norquist should move to Louisiana. And if he has kids, send them to public schools or Jindal’s charter schools. Then see if they can read and write after 12 years.

Now that would be a bold statement by Grover.

Why does Reuters publish this guy anyway?

Posted by upstater | Report as abusive

I am a resident of Louisiana. I see no mention of requiring the collection of sales tax on Internet purchases. The state will need this because if this poor idea is instituted, Internet sales to Louisiana residents will skyrocket resulting in a loss of more income to the state. Even if state sales tax is required to be collected, online buying will still increase with a loss of sales tax revenue to the local municipality.

I am already paying right at 10% state and local tax on every purchase I make. another 1.8% will be tough to swallow. I am sure I will see other state administered fees such as vehicle registration, Inspection fees for example rise as well.

Also, when doing the math on my income and state taxes paid, there is no significant difference of savings when adding in this additional 1.8% of sales tax being charged. It comes out about even. Yes, I could buy less product as I have a choice what I buy but then I don’t have an item I want and the vendor that sells it doesn’t obtain their profit and the local taxing body doesn’t get their revenue.

So in summary, the only one I see benefiting in this entire equation is the large corporations in tax savings.

Posted by Smurfe | Report as abusive

This plan will work out if applied nationally. For a consumer society, it may provide a balance based on incomes. Rich families may spend more and contribute to revenues. Poor will be wary of out-spending themselves, but still will be pleased with not paying any income tax. However, if this proposal is implemented only in Louisiana, then there is no guarantee that the rich people in Louisiana will always purchase goods from that state. They may go to a next state which has lesser sales taxes. When applied at Federal level, it can be more effective. This also means, Fed may have to depend on states for its own revenues, probably a legally enforced percentage of sales revenue from each state.

Posted by Regular | Report as abusive

RobinGrace, I believe previous commentors were referring to the fact that partnerships, limited liability corporations, single-member LLCs and most S-Corps do not directly pay taxes. Those types of businesses report their taxable income to the IRS, but the income flows to the owners who then pay taxes on their share of the business income. A lot of nonprofits, foundations and trusts also do not pay taxes. That leaves corporations as being the business form that predominantly pays taxes, which are passed on to their customers via higher prices. A corporation’s goal in reducing its taxes is not so much to benefit its customers as it is to benefit its shareholders.

Posted by News2Day | Report as abusive

[…] The great debate over tax reform in Louisiana officially began today with Gov. Bobby Jindal unveiling the long-awaited details of his plan to overhaul the state’s tax code. Jindal immediately got support from a leading voice of the right, Grover Norquist, who penned a column with Patrick Gleason for Reuters today calling Jindal’s plan “the boldest, most pro-growth state tax reform in U.S. history.” Norquist, a lobbyist who’s perhaps best known for getting Republican lawmakers to take the Taxpayer Protection Pledge, notes many governors around the United States have proposed rate-reducing tax reforms similar to Jindal’s call to eliminate personal and corporate income taxes. “But Jindal’s plan sets a gold standard for pro-growth reform,” reads the column. “His proposal could mean more disposable income for families while increasing the job-creating capacity of employers across the Pelican State.” The column says Jindal’s plan would make Louisiana more conducive to economic growth and is a model for lawmakers in other states—and Washington, D.C.—to follow. “His plan adheres to the conservative principle that the tax code should not be used to pick winners and losers in the economy. It demonstrates that the purpose of real tax reform is to make the tax code more efficient and competitive—not to raise additional revenue.” You can find the full column here. […]

[…] The great debate over tax reform in Louisiana officially began today with Gov. Bobby Jindal unveiling the long-awaited details of his plan to overhaul the state’s tax code. Jindal immediately got support from a leading voice of the right, Grover Norquist, who penned a column with Patrick Gleason for Reuters today calling Jindal’s plan “the boldest, most pro-growth state tax reform in U.S. history.” Norquist, a lobbyist who’s perhaps best known for getting Republican lawmakers to take the Taxpayer Protection Pledge, notes many governors around the United States have proposed rate-reducing tax reforms similar to Jindal’s call to eliminate personal and corporate income taxes. “But Jindal’s plan sets a gold standard for pro-growth reform,” reads the column. “His proposal could mean more disposable income for families while increasing the job-creating capacity of employers across the Pelican State.” The column says Jindal’s plan would make Louisiana more conducive to economic growth and is a model for lawmakers in other states—and Washington, D.C.—to follow. “His plan adheres to the conservative principle that the tax code should not be used to pick winners and losers in the economy. It demonstrates that the purpose of real tax reform is to make the tax code more efficient and competitive—not to raise additional revenue.” You can find the full column here. […]