Metairie, La. — Let’s say you want to start a small business here in this New Orleans suburb. You formulate a business plan that will make it profitable. You seek out competent employees whom you can afford to hire. And then you take out a loan to buy a full set of new computers.
You might not think that your activity to this point is taxable — after all, you still haven’t made a dime by the time you’ve taken these preliminary steps.
But this is Louisiana, so you would be wrong.
First, you must pay taxes on the amount of that loan you just took out — a “debt tax” included in the basis of the state’s franchise tax. On top of that, you must pay an additional “new equipment” tax on your computers. Finally, you have to pay a business-utilities tax on the electricity required to run the computers.
Generally speaking, politicians of all stripes at least say that they want to encourage business investment. For conservatives, this usually means business-friendly tax policy that creates the right incentives. For liberals, it might include subsidies, government-backed loans, government contracts, or public-private partnerships.
But in Louisiana, none of this applies. The state government directly punishes business investment with this malicious triumvirate of taxes that create great obstacles to job creation. It hasn’t been a winning recipe for attracting and keeping businesses in the state — not before Katrina, and certainly not now.
This is why, in every speech he gives in every little town throughout the state, Rep. Bobby Jindal (R.), candidate for governor, denounces these three taxes and calls for their repeal.
“We need to get rid of those taxes and provide the skilled workers that businesses need,” Jindal said Friday, addressing a friendly crowd of 50 voters in a sporting goods store in Bastrop. “The steel mills are going to Alabama and the car plants are going to Mississippi,” he went on, to applause from a crowd standing amid racks of guns and camouflage hunting jackets. “We’re not a poor state. We’ve just had poor leadership.”
The problems with Louisiana’s punitive business tax regime should seem obvious to people of any ideology, but the current state government never got the memo. Gov. Kathleen Blanco (D.), who is not running for reelection, vetoed a cut to the utilities tax this summer, citing the need to balance the state budget. As Blanco balanced the budget at the expense of business and job growth, her administration was also spending $1 billion hiring more than 1,200 new government employees.
Louisiana had the lowest per-capita income of any state in 2005. Previously, it had been near the bottom. Corruption is part of the problem, but state interference with economic development goes far beyond the indictments against Rep. William “Dollar Bill” Jefferson (D.), Agriculture Commissioner Bob Odom (D.), and the two Democratic judges from Caddo Parish accused of taking bribes. Louisiana’s outdated tax policy also takes a bite out of job growth and slows the still-unfinished reconstruction efforts from after the storms of 2005.
“Louisiana has always been blessed with natural resources,” Jindal told me as we rode from Bastrop to Rayville on his campaign bus. “There was a time, back during the oil boom, when people here really felt like the businesses had no alternative but to be here and to deal with us. They were captive because of our oil, our ports, our gas, our timber. But the reality has changed. You can’t just depend on your natural resources any more. We have a global economy now, but we are still stuck with this crazy tax code.”
The race in Louisiana — a 12-way multiparty primary that has turned into a race between Jindal, state Sen. Walter Boasso (D.), and independent candidate John Georges — is significant for a number of reasons. Locally, it threatens to shake up a state government dominated by Democrats and known best for corruption, cronyism and incompetence. Nationally, Republicans see a chance to divert the political conversation from the one that has been going on since Hurricane Katrina, which offers an ever more grim evaluation of their party’s future prospects.
From the broad philosophical perspective, Louisianans — the ones directly affected by the storm that clobbered New Orleans — may decide this Saturday that conservative solutions are the cure for what ails them. Even before the levees broke two years ago, Louisiana was losing population proportionately, compared to the whole United States.
As with the problem of government corruption, there is much low-hanging fruit in the world of economic and tax policy. A clean, competent governor could seize some of these tax issues and effortlessly make huge strides in improving the state.
– David Freddoso is an NRO staff reporter.