It’s been a mixed year for state-based tax reform. In January, no fewer than four states were considering the repeal of their corporate and personal income taxes — Louisiana, Nebraska, Kansas, and North Carolina.
But following Louisiana Governor Bobby Jindal’s reversal last week, which came after Nebraska Governor Dave Heineman’s similar retraction in February, the number of states on the tax reform boat is down to just two — North Carolina and Kansas.
This turn of events is a shame. It is most depressing for the citizens of those states that came closest. I can confidently say this because the research on this subject has been unequivocal: Tax reform leads to more jobs and bigger paychecks.
North Carolina’s Civitas Institute, of which I am president, has conducted an extensive study that shows this to be more than just a hopeful assertion. By shifting from a growth-crippling income tax system to a consumption-based system, the Tar Heel State would have experienced additional growth in personal income as high as $25 billion over the past decade. On the individual level, that would have been an additional $2,600 per person.
It would have been even better on the jobs front. Ten years after tax reform, we would have an extra 378,000 jobs. For a state that ended 2012 with a 9.4 percent unemployment rate, we’re having a classic case of “coulda, shoulda, woulda.”
It’s a similar story in Louisiana. Jindal’s decision to turn his back on tax reform came less than two weeks after the nonpartisan Pelican Institute for Public Policy released a report predicting the effect of the governor’s reform.
The Pelican Institute’s conclusions were as unequivocal as ours. The Bayou State would have seen job growth exceeding 10,000 jobs per year, as well as additional annual business investment of more than $100 million. Income-wise, Louisianans would have earned, on average, an additional $700 in the first year alone, with additional increases over the following several years.
These numbers are easy to grasp. Unfortunately, the politics surrounding them are not. Both Jindal and Heineman caved after public opinion — and interest group lobbying — turned against them.
The former was particularly important. Opponents of raising the sales tax generally turn to the same critique: Sales tax hikes hurt the 99 percent while benefiting the 1 percent. This rhetoric worked in both cases, as the public looked skeptically on plans that didn’t seem to benefit them at all.
It’s a damning indictment, but it’s also a false one. The numbers are actually on the side of reform rather than the status quo. Civitas has since released a follow-up report showing that in the Tar Heel State, the economic growth from this reform is concentrated most heavily in low-income households. In other words, the job growth will occur for those most in need, offsetting any harm from the sales tax through job creation and income growth.
Hopefully, the legislative leaders in Kansas and North Carolina won’t change their minds in the coming months. The facts are on their side, after all. And if they finish the task they’ve started, they will surely send a strong message to the friends of tax reform across the nation — including those left holding the banners in Louisiana, Nebraska, and elsewhere. That message will be, “Don’t lose hope.”
Francis DeLuca is the president of the John W. Pope Civitas Institute, which is located in Raleigh, North Carolina.
