New Report Finds Louisiana Proposal to Raise Taxes Will Hinder Economic Growth
Governor Rightly Takes Tax Increases Off the Table for Upcoming Special Session
A new report, Addressing Louisiana’s Budget Shortfall: Strategies for Growth, released today by the Pelican Institute, Louisiana’s premier voice for free markets, found that proposals to raise taxes to finance more state government spending will hinder economic activity and growth. The report is particularly timely, given Governor John Bel Edwards’ call for a special session, in which he has rightly taken tax increases off the table.
The report, produced in partnership with The Buckeye Institute’s Economic Research Center, determined that eliminating the corporate income tax and replacing it with a revenue neutral sales tax increase creates jobs, grows the economy and increases tax revenue.
“As Louisiana policymakers continue to explore remedies for revenue shortfalls, this report clearly shows that raising taxes to finance more government spending will hinder economic activity and growth,” said Abhay Patel, acting executive director for the Pelican Institute. “Unfortunately, Louisiana has routinely voted to raise taxes in order to balance the budget, while tax reform proposals have been rejected. It is now clear, that to resolve its perennial budget crisis, we must adopt a more permanent tax and spending structure that fosters real and sustained economic growth.”
Orphe Pierre Divounguy, the lead economist with Buckeye’s Economic Research Center and the lead author on the report, said, “Rather than pursue revenues through increasing the tax burden on citizens, Louisiana would be better served by reducing or eliminating corporate taxes, and creating incentives for increasing investment, and job creation across the state. Eliminating Louisiana’s corporate income and franchise taxes offer the best path for spurring economic growth and eliminating some sales tax exemptions would have the least harmful effect on the state’s gross domestic product while still raising additional tax revenue.”
Other Key Findings:
- Eliminating the corporate income tax is the most pro-growth policy and would generate more than 11,000 jobs in the first two years, and boost the state gross domestic product by almost $1 billion dollars.
- The commercial activity tax (CAT) would cause the most pain for least gain, reducing employment by more than 11,000 jobs, and would generate only around $260M in tax revenues. When tested, the CAT caused the biggest drop in the state’s economy and withdrawing it from consideration was the right decision by the legislature.
- While tax base broadening is good economic policy, it only works when it is offset by tax rate reductions, otherwise it is a tax increase which will reduce consumption and investment.
The report used a dynamic scoring model, developed by economists at Buckeye’s Economic Research Center, to test more than a dozen possible changes to Louisiana’s tax policy and show their effects on gross domestic product, jobs creation or loss, and revenue.
The report was authored by Orphe Pierre Divounguy, PhD, the senior economist at Buckeye’s Economic Research Center; Rea S. Hederman Jr., who oversees the work of the Economic Research Center and serves as Executive Vice President at the Buckeye Institute; Bryce Hill; and Lukas Spitzwieser.
Click here to download Addressing Louisiana’s Budget Shortfall-Strategies for Growth.