Jindal scraps his tax plan

04 08, 2013 by The Advocate

Gov. Bobby Jindal bowed to public sentiment Monday and shelved his plan to immediately eliminate income taxes and raise sales tax.

The governor admitted defeat on the first day of the legislative session during a speech to a joint gathering of the Louisiana House and Senate.

Jindal said he heard the complaints that he moved too fast and that his approach was not the best one.

House Democrats, religious leaders, public research groups, the business community and even the governor’s own accounting consultant found fault with his proposal to eliminate the state’s personal income and corporate taxes in favor of a higher state sales tax rate and a broadening of the sales tax base.

“Let me do something politicians don’t normally do,” Jindal said. “We’re going to adjust our course. We’re going to park our tax plan.”

The governor indicated he would support an income tax phaseout. Several proposals are circulating, including five-year and 10-year phaseouts. It is unclear which plan the governor would support or how the lost revenue would be replaced in a state budget that funds health care, education and other public services.

“Let’s get rid of the income tax. Send me that bill,” the governor said, triggering a standing ovation by legislators and his family.

Word of what Jindal planned to announce leaked out in the minutes ahead of the governor’s arrival in the historic House chamber.

State Rep. Joel Robideaux, who sponsored the bulk of the bills in the governor’s tax package, said he learned of Jindal’s decision from fellow legislators on the House floor moments before Jindal uttered the words himself.

Robideaux, R-Lafayette, said he had been reluctant to push forward with the package.

“He could read the tea leaves,” he said of the governor’s reversal.

Jindal zipped through his speech in 13 minutes, skipping over some parts and straying from a verbatim recitation. He made no mention of other parts of his legislative package, including the state budget.

He went off script to talk about visiting with his brother Nikesh, sister-in-law Archana and their baby boy Nayan over Easter weekend and waving goodbye to them as they departed by airplane to their home in the Washington, D.C., area.

He said he will miss his nephew’s first steps, ballgames and school plays because his brother and sister-in-law are pursuing opportunities outside Louisiana.

Jindal left it to legislators to come up with a way to create jobs, careers, prosperity and growth in Louisiana so sons and daughters can remain within the state’s borders to chase their dreams.

After the governor’s speech, Senate President John Alario, R-Westwego, said Jindal made the right decision.

“He’s responding to public opinion that he’s going a little too fast on it,” Alario said.

Others expressed concerns about how the state would replace several billion dollars in revenue lost by eliminating the state’s personal income and corporate taxes. Jindal’s now scrapped plan was a multi-layered approach that included nearly tripling the cigarette tax and increasing the state sales tax from 4 percent to 6.25 percent.

“We need highways. We need infrastructure. We need to fund the community and technical college system,” state Rep. Eddie Lambert, R-Prairieville, said.

House Democratic leader John Bel Edwards, of Amite, said legislators cannot grasp the consequences until they know the details of the new plan.

Andrew Muhl, government relations director for the American Cancer Society of Louisiana, said he hopes the governor still supports some type of a cigarette tax increase.

“By changing his mind about a $1.05 tax increase, Jindal is missing the chance to prevent 37,600 kids from becoming addicted to smoking,” Muhl said.

Many legislators said Jindal clearly realized his plan had no traction.

State Rep. Major Thibaut, D-New Roads, said the sales tax increase was not resonating with his constituents.

“We all agree it would be great to get rid of income tax,” Thibaut said. “We differ on how to do it.”

State Sen. Bodi White, R-Central, said he has long thought the governor’s tax plan would not emerge from the House for a Senate vote.

“It was very ambitious,” White said. “Many of the questions couldn’t be answered.”

White said that, if need be, a special session strictly to deal with the state’s tax structure would be preferable, if it could also help shore up Louisiana’s operating budget and avoid repeated rounds of midyear cuts.

Robideaux said he is uncertain about the fate of an income tax phaseout in the roughly nine-week session.

“I’m not going to be bold enough to say we’re going to get something all the way through the process. But it’s a possibility,” he said.

Robideaux chairs the House Ways and Means Committee, which will hear tax bills.

The governor announced in January that he wanted to eliminate the state personal income and corporate taxes in a way that would not impact the state budget. The changes would have taken effect Jan. 1.

His administration proposed taxing currently untaxed services such as cable television and hair cuts. Amid criticism that the plan would not raise enough revenue, the governor changed the proposed new sales tax rate to 6.25 percent.

Jindal crisscrossed the state in the weeks leading up to the session, peddling his plan to chambers of commerce and other groups, even as opposition steadily grew back home in Baton Rouge.

The state’s largest business lobbying organization, the Louisiana Association of Business and Industry, called LABI, threatened to oppose the plan since the sales tax base expansion would hit a wide range of services that businesses purchase from other businesses. Religious leaders from across Louisiana told the governor they had reservations. House Democrats criticized the plan.

The governor initially dismissed the criticism as the status quo fighting to keep loopholes in place.

However, even Robideaux became a less than enthusiastic cheerleader, telling news reporters last week that supporters needed to make their voices heard and that he was uncertain the plan was revenue neutral.

Days later, House Speaker Chuck Kleckley, R-Lake Charles, announced the governor’s plan was on hold until the Legislature’s financial experts could crunch the numbers.

On Friday — three days before the start of session — criticism emerged from an even odder corner. Ernst and Young, a national accounting firm hired by the Jindal administration to run numbers, cautioned against expanding state sales tax bases to draw in services that are part of businesses’ regular expenses. Ernst and Young said such an expansion encourages businesses to do service in-house, puts companies at a competitive disadvantage and could result in higher consumer prices.