Bobby Jindal finds the promised land of conservative tax policy
Politicians looking to 鈥渆nhance revenue鈥� without raising taxes might want to take a close look at Louisiana, where Governor Bobby Jindal may have found聽聽of conservative tax policy. He鈥檚 promoting a plan to聽聽without a tax increase. His trick: Turn refundable business credits into non-refundable credits.
With a refundable credit, firms benefit from the subsidy even if their tax liability is zero. By making these credits non-refundable, as Jindal has proposed, their taxes technically don鈥檛 increase. They are still zero. But firms would no longer get that refund, saving the state millions of dollars.
Jindal鈥檚 move highlights the reality of these credits: They should be thought of as spending programs. Still, because a tax credit reduces the amount of revenue a state collects, a governor can raise money by making the credit less generous, without changing tax rates. Federal and state lawmakers are looking at this form of base broadening as a way address deficits without violating their no-new-taxes pledges.
But none are quite as bold as Jindal, a GOP presidential hopeful. One of his biggest targets is the inventory tax credit. Louisiana is one of聽聽where local governments can levy a property tax on inventory. All businesses are subject to the tax but firms with large inventories鈥攕uch as manufacturers, energy producers, big box stores, and car dealerships-- pay the bulk of the tax.
The state currently provides a refundable credit equal to the tax paid to the local parish (county). It is a messy way to provide state aid to the parishes. Instead of sharing revenue, the state requires businesses to pay the parish and then apply for a state refund. Under Jindal鈥檚 plan, the refund would be capped at the business鈥� state tax liability.
Even though Louisiana publishes a聽, tax credits have not gotten the same scrutiny as appropriations. But they are spending and do put a strain on the state鈥檚 ability to provide adequate services.
By framing the debate as an effort to eliminate corporate welfare, Jindal may be able to get some of the additional revenue he needs to begin to address聽, without touching tax rates. Plus, he鈥檚 highlighting the nature of tax credits as spending programs. And that may encourage Louisiana lawmakers to take a hard look at other tax subsidies, like the $250 million聽.
Which would be good for Louisiana since it can use the revenue more than the ideology.
