Eliminating Louisiana’s Income Taxes Will Hurt the State’s Economy

Eliminating Louisiana’s Income Taxes Will Hurt the State’s Economy

by David Gray

Gov. Bobby Jindal’s plan to abolish Louisiana’s income taxes is based on a flawed economic analysis and is likely to hurt the state’s economy rather than boost it, according to a new report by the Louisiana Budget Project.

The governor and his allies often cite a report by the American Legislative Exchange Council, “Rich States, Poor States,” to support their theory that eliminating income taxes will spur economic growth. This report concludes that 62 percent of net U.S. job growth over the last decade occurred in the states with no income taxes. But the report fails to mention that just one of those states, Texas, accounted for 70 percent of that job growth, while remaining eight states experienced increases in unemployment.

The report also fails to mention that Texas’ performance is mostly due to factors unrelated to taxes, like its abundance of natural resources and geographic location along the trade-rich Mexican border.

States with income taxes that are higher than Louisiana’s perform better on several important economic and quality-of-life indicators than their no-income-tax counterparts. States with relatively high income taxes have greater median household incomes, higher household disposable incomes and more widespread health insurance coverage – none of which should be true if taxes were a primary factor in economic activity and well-being.

The overwhelming majority of small businesses, start-ups and entrepreneurs are unlikely to experience any tax savings from the governor’s plan to abolish corporate income taxes. Rather, substantially increased sales taxes – which the governor would use to recoup revenue losses under his plan – are likely to reduce demand for goods, which would reduce production.

Instead of eliminating income taxes and levying the highest sales taxes in the nation, the task for Louisiana’s elected officials is to seek ways to raise revenues beyond current levels and invest in public services like education, health care, transportation and public safety. These investments have a far greater potential to build the state’s economy and improve prosperity and well-being than the proposed income tax breaks.

For a copy of the full report and more information on LBP, visit www.labudget.org and read “Eliminating Louisiana’s Income Taxes Will Hurt the State’s Economy.”