All over the country, conservative leaders are getting fired up over the idea of eliminating state income taxes and replacing them with higher sales taxes. In fact, whether they’re in Ohio, Kansas, Georgia or Louisiana, they all seem to read from the same script.
Abolishing the income tax is said to promise an immediate boom to every state that enacts it. Tens of thousands, even hundreds of thousands, of new jobs would supposedly be created. And time after time, almost as a matter of ritual, the state of Texas is held up as the model to be emulated.
As a young politician with national ambitions, Louisiana Gov. Bobby Jindal saw that parade forming and wanted to be right at the forefront for all to see. So early this year, he announced his own legislative initiative to follow Texas and abolish Louisiana’s personal and corporate income taxes. To compensate for the lost revenue, he proposed to increase the state’s sales tax by more than 50 percent and to broaden the tax to include services, including some services used by business.
The announcement brought exactly the kind of national attention that Jindal craved. Grover Norquist, head of Americans for Tax Reform, embraced the plan as “the boldest, most pro-growth state tax reform in U.S. history,” concluding that “Jindal’s plan sets a gold standard for pro-growth reform.”
Come 2016 in places such as Iowa and New Hampshire, praise like that would be political gold — except for one problem: The people who would have to pay those taxes hated the idea. In fact, once Louisianans saw the details, they responded so angrily that this week, the governor was forced to put his plan on the shelf, admitting it had no chance of passage. Thanks in large part to that backlash, Jindal is now less popular in deep-red Louisiana than Barack Obama, who lost the state by 17 points.
Now, I know what you’re thinking: “Surely, Jindal’s fate will serve as a cautionary tale for other Republicans, right?” Wrong. These days, Republicans don’t listen to cautionary tales. To the contrary, early signs are that Georgia Republicans may push a plan even more extreme than that proposed in Louisiana.
Based on legislation already filed at the Capitol, and on the results of a 2011 report by a statewide tax-reform commission, Georgia leadership appears headed toward a system that would replace both the corporate and personal income tax with a much higher sales tax rate, just as Jindal proposed. However, unlike the Jindal plan, business would be exempt from paying that sales tax. The result would be a sales tax increase of 5 percentage points or more, roughly twice the hike projected in Louisiana, and all of it paid by consumers.
That would create a grotesquely imbalanced tax system.
According to data compiled by the Institute on Taxation and Economic Policy, poor Georgians already pay nine times as much of their income in sales taxes as do rich Georgians. Middle-class Georgians pay four times as much of their income in sales taxes as the top 1 percent of Georgians. So imagine the impact on those groups should the sales tax become the primary source of state revenue.
It’s also important to address the so-called “Texas argument,” because you see it everywhere. According to the Marietta Daily Journal, for example, Attorney General Sam Olens urged Georgia to emulate the Texas tax system in a speech to Cobb County Republicans just last weekend.
It’s true that the Texas economy has done better than most in this recession. However, another state with no income tax, Nevada, has been hit very hard, with the highest unemployment and foreclosure rates in the country. I’m not sure why one state’s experience should be deemed relevant while another’s should be ignored altogether.
In addition, Texas produces three times as much crude oil — almost 2 million barrels a day — as second-place North Dakota, and it collects roughly $4 in taxes on each barrel. It also produces twice as much natural gas as any other state, collecting a tax of 7.5 percent of the market value of that gas.
Georgia produces no natural gas and no oil. With no access to the unique sources of revenue that make the Texas system possible, it would be foolish for the Peach State to try to replicate it. But that doesn’t mean some people won’t try.
