Revenue Triggers Are a Critical Component of Tax Reform
Louisiana is in desperate need of tax reform. The complexity of our tax code sends jobs and opportunities to friendlier states, and our friends and family with them. Simplifying our taxes will bring fairness and predictability to Louisiana, and it is an important first step to writing Louisiana’s comeback story.
Right now, Louisiana lawmakers are debating a variety of different approaches to tax reform. The Pelican Institute has laid out our recommendations for a fair, flat, simple, and predicable pathway to tax reform, and it appears lawmakers will at least take the first, important steps at simplification this year.
The good news: we don’t have to guess at what the results of tax reform will be. Not only has modeling predicted significant job growth and an increase in economic activity after simplifying the tax code, we can also look to the results of other states who have taken on big reforms. One of the best examples of this is North Carolina, which began to tackle reform in 2013 and had incredible results, as described by Brian Balfour from the John Locke Foundation in Raleigh.
One of the most important components of the North Carolina package was a concept known as “revenue triggers.” To quote Ronald Reagan, triggers are a great way for all sides to “trust but verify” economic growth claims.
Here is how they work: if the state collects more revenue in a year than the previous year (plus a budgeted growth amount), the tax rate automatically decreases the next year. Decreasing the rate will continue to spur economic growth (without drastic cuts to state government), and the process continues the next year. When the economy grows, we have more quality jobs, and those jobs generate more tax revenue. If the tax revenue doesn’t grow, the tax rates stay the same.
North Carolina isn’t the only state to have success with this method. In fact, eleven states have used triggers to continue tax rate cuts.
Louisiana is in desperate need of bold reforms. In order to write our state’s comeback story, nibbling around the edges won’t do. That’s particularly true with tax reform. Simplify the code, flatten the rates, and enact revenue triggers. It’s time.
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