Fox News promoted a proposal by Louisiana Gov. Bobby Jindal to eliminate the state income tax and increase sales tax by a corresponding amount, saying that with such a plan, "everybody wins." In fact, the plan would seriously harm middle and lower income tax voters while providing little or no benefit to the economy.
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Louisiana Governor Bobby Jindal Proposes Ending State Income Tax And Increasing Sales Tax To Pay For It
Times-Picayune: "Bobby Jindal Is Proposing To Eliminate Louisiana's Income And Corporate Taxes And Pay For Those Cuts With Increased Sales Taxes." The Times-Picayune reported that Governor Bobby Jindal is proposing an end to Louisiana's income tax with a plan to offset the cuts with an increase in the sales tax:
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."
The governor's office has not yet confirmed or denied an article in The Monroe News-Star that reports eliminating the state income tax could require increasing the state sales tax from 4 percent to 7 percent. [The Times-Picayune, 1/10/13]
Fox Claims "Everybody Wins" Under Jindal's Plan
Fox's Stuart Varney: "If The Absence Of Income Taxes Creates A Growing Economy, Everybody Wins." On Fox & Friends, Fox Business host Stuart Varney suggested that eliminating income tax at the state level could lead to a growing economy in Louisiana:
STUART VARNEY: Governor Bobby Jindal, he wants to eliminate personal income taxes and corporate taxes. Now that's a radical move. He wants to shift instead to a sales tax -- higher sales tax -- shifting from income taxes to consumption taxes. He thinks that that will give the state growth, bring in employers, create jobs, make the economy of Louisiana expand, and basically progress the state forward.
PETER JOHNSON JR. (guest co-host): So he's saying if you make Louisiana a great place to come, companies will come and people will have work. But the trade-off is higher sales tax. So the question of the day is: Is that a regressive tax as you economists say?
VARNEY: Yes. Yes.
JOHNSON: And what does that mean if it's a regressive tax?
VARNEY: Everybody pays it.
VARNEY: It has no relation to how much you earn. It's how much you spend. You pay taxes according to what you spend. A sales tax, it taxes consumption. So in that sense, yes, it is regressive. But on the other hand, if the absence of income taxes creates a growing economy, everybody wins from that. [Fox News, Fox & Friends, 1/14/13]
Wall Street Journal's Stephen Moore: "States Without Income Tax Are Doing Much Better" Than Those With Income Tax. On America's Newsroom, Stephen Moore of the Wall Street Journal claimed that states without income tax were experiencing "very significant growth" compared to states that don't have income taxes:
STEPHEN MOORE: He wants to make Louisiana one of those -- join the ranks of those nine states across the United States that don't have an income tax. Those are states like Texas and Florida and Tennessee and New Hampshire and Washington, Nevada. And those states are doing very well economically, generally, and they're doing much better -- Art Laffer, who you have on this show a lot and I do a study every year called Rich States, Poor States, and we find very significant growth, Bill, in those states that don't have income taxes. [Fox News, 1/14/13]
Fox Guest Matt McCall: Cutting Personal And Corporate Income Tax Means "More Jobs, Higher Employment." President of the Penn Financial Group and Fox News guest Matt McCall said on America's Newsroom that eliminating the state income tax would increase employment with increases in consumer spending making up for lost income tax revenue:
BILL HEMMER (co-host): Hey, Matt, what is the effect when these states cut taxes like that from a financial perspective?
MATT MCCALL: From a financial perspective, it's great. Steve just mentioned Art Laffer does a lot of studies and shows that it actually does really well for the states. Because what happens is when you cut the personal and corporate income tax, you now have incentives for corporations to come into your state. If more corporations are coming into your state, that means more jobs, that means higher employment, that means people spending more money, and they make up for the lack of income tax. Sales tax will go up. So, if you're spending more money, the state actually brings in more revenue. So a roundabout way this comes down to, Bill, is the fact, the states will have more money to spend on a lot of programs to again spur on growth even more. So it's a trickle-down effect. [Fox News, 1/14/13]
But Increasing The Sales Tax Would Disproportionately Burden Middle- And Lower-Income Americans ...
Center On Budget And Policy Priorities: "Higher Sales And Property Taxes Will Disproportionately Affect Middle- And Lower-Income Families And Businesses." A report from the Center for Budget and Policy Priorities found that an increase in sales and property taxes have a disproportionately higher impact on lower- and middle-income families and businesses:
Families with moderate and low incomes pay more sales and property taxes, as a share of their incomes, than higher-income families because they spend a higher proportion of their earnings on taxable goods and housing. Thus, increased sales and property taxes would shift a larger share of the responsibilityy for paying for schools, health care, and other services onto those with relatively less ability to afford it.
Higher sales and property taxes will affect businesses, too. In every state, a substantial share of sales taxes comes from business-to-business purchases, and a large share of property taxes is paid directly by businesses too. Any reduction in income tax on business profits is likely to be offset, at least in part, by higher taxes on business purchases and on agricultural and commercial property. [Center on Budget and Policy Priorities, 3/22/12]
Tax Policy Center: Jindal's Proposal "Would Dramatically Shift More Of The Burden Of Louisiana's Taxes Onto Lower-Income Individuals." The Tax Policy Center noted that lower-income households have to spend more of their income each month and therefore, a shift from income taxes to sales taxes "would end up paying higher effective tax rates than higher-income households which tend to spend less and save more." This would be exacerbated if Jindal broadened the sales taxes to include groceries and utilities:
Last week Louisiana's Republican Governor Bobby Jindal proposed replacing the state's individual income and corporate taxes with a higher sales tax. While details are scarce, initial media reports suggest Jindal would both raise the sales tax rate and make more goods and services subject to the levy.
Louisiana's current 8.86 percent average combined state and local sales tax rate (4 percent state rate and 4.86 percent average local rate) is already the third highest in the nation. Jindal's plan would boost it to the highest level in the country by far. One published report suggests the state levy alone could be increased to as much as 7 percent.
Broadening the sales tax base is a mixed bag. On one hand, taxing more goods and services helps to limit the tax's distortions across consumption and also allows for a lower tax rate, all else equal. But base broadening can also push more of the burden to low-income households. Louisiana currently excludes groceries and utilities from taxation; taxing them would be especially difficult for families with limited resources.
In fact, even without base broadening, the proposal would dramatically shift more of the burden of Louisiana's taxes onto lower-income individuals. Since low-income households devote a higher share of their income to consumption, they end up paying higher effective tax rates than higher-income households which tend to spend less and save more. This concern is particularly stark in Louisiana, which was recently ranked as the sixth most unequal state in the country by one measure of inequality. [Tax Policy Center, 1/14/13]
... While Providing Little Or No Economic Benefit
Institute On Taxation And Economic Policy: "States With 'High Rate' Income Taxes Have Economies That Equal Or Surpass Those In States Lacking An Income Tax." The Institute on Taxation and Economic Policy found that the economies in states that have high income tax rates equal or surpass those in states lacking an income tax:
Whether looking at income levels, unemployment rates, or economic output per person, states with "high rate" income taxes have economies that equal or surpass those in states lacking an income tax. The most commonly cited analysis purporting to show the opposite confuses population growth with economic performance, and fails to acknowledge the natural resource advantages enjoyed by a number of the most successful non-income tax states. There is no reason for states to expect that reducing or repealing their income taxes will improve the performance of their economies. [Institute on Taxation and Economic Policy, February 2012]
Center For Tax And Budget Accountability Director Ralph Martire: "Being Low-Tax Doesn't Generate Economic Competitiveness Or Long-Term Economic Viability." Executive Director of the Center for Tax and Budget Accountability Ralph Martire told Bloomberg in June that states with low-taxes don't necessarily generate competitiveness or economic viability:
"Being low-tax doesn't generate economic competitiveness or long-term economic viability," said Ralph Martire, executive director at the nonpartisan Center for Tax and Budget Accountability in Chicago. "There are other factors that are far more important. The state tax burden overall is marginal compared to federal tax burden." [Bloomberg, 6/25/12]
Tax Policy Center: There Is "Little Evidence That Americans Will Move To Take Advantage Of Lower State Income Tax Rates." The Tax Policy Center wrote of Jindal's plan that it was unlikely Americans would relocate to Louisiana to take advantage of a lower income tax rate, and that whatever growth is created will be done by forcing lower-income Louisianans to shoulder a disproportionate tax burden:
Proponents of this major tax swap may also claim that eliminating the corporate tax will attract more businesses to Louisiana and dumping the personal income tax could make the state a magnet for high-income individuals.
Not all of these claims carry weight. There is little evidence that Americans will move to take advantage of lower state income tax rates. And since seven states already have no income tax, households that would move exclusively for lower tax rates would likely have already done so. It's true that sales taxes help shift the tax burden to out-of-state tourists, but higher sales tax rates can also push consumption to other states, untaxed internet purchases, and off-the-book transactions.
Ultimately, the shift could lower compliance and administrative burdens, and help to boost long-run growth a little. But it's not worth asking low-income households to shoulder such a large share of the burden to achieve such a small statewide gain. [Tax Policy Center, 1/14/13]