By Victor Skinner | The Center Square contributor | Feb 16, 2023

(The Center Square) – Louisiana’s combined state and local sales taxes are the highest in the nation, a reality critics contend is one of several tax and spending issues plaguing the state.

The Tax Foundation released a report last week that compares state and local sales taxes across the nation, ranking states based on both the state sales tax and combined state and local rates.

The research shows that as of Jan. 1, Louisiana’s state sales tax of 4.45% ranks 38th from the top. But when that figure is added to the average local tax rate of 5.10%, the state’s 9.55% combined rate becomes the highest among 50 states and the District of Columbia.

"Sales taxes are just one part of an overall tax structure and should be considered in context," according to the report. "For example, Tennessee has high sales taxes but no income tax, whereas Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers’ control that can have immediate impacts."

The report comes as Louisiana lawmakers are studying potential changes to the state’s tax structure ahead of the 2023 legislative session. Vance Ginn, chief economist for the Pelican Institute, contends that excessive government spending is one factor driving higher taxes in Louisiana, though he believes personal income taxes are having the biggest impact on the state’s economy.

"We have got to find a way to restrain excessive government spending at the state and local level," he said. "The sales tax is high in Louisiana … but really the focus should be on the burdensome income tax."

The Pelican Institute is advocating for a flat income tax that eventually phases to zero.

"That will allow for more job creation and economic growth," Ginn said.

The Tax Foundation ranks Louisiana 25th nationally for income taxes, 32nd in the nation for corporate income tax, and 23rd for property taxes. Those rankings, combined with other measures, puts the state in 39th place overall in the foundation’s 2023 State Business Tax Climate Index.

The foundation’s most recent report notes that sales tax rates can have a significant impact on where residents make major purchases and where businesses locate, and it cites examples of states that have increased per capita sales by maintaining rates lower than their neighbors.

The analysis shows Louisiana’s 9.55% combined sales tax rate is more than 2% higher than Mississippi’s 7.07% rate, and 1.35% higher than Texas at 8.20%. Arkansas’ combined rate of 9.46% is the third highest nationally, behind Louisiana and Tennessee at 9.55%.

California has the highest state sales tax rate at 7.25%, followed by four states tied for the second-highest rate, at 7%: Indiana, Mississippi, Rhode Island, and Tennessee.

Five states do not have a state sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. The lowest rates for states with sales tax include Colorado at 2.9%, followed by Alabama, Georgia, Hawaii, New York and Wyoming, all at 4%.
States with the highest average local sales tax rates include Alabama at 5.25%, Louisiana, Colorado at 4.88%, New York at 4.52%, and Oklahoma at 4.48%.

Behind Louisiana with the highest combined state and local sales tax is Tennessee, Arkansas, Alabama at 9.25% and Oklahoma at 8.98%.

States with the lowest average combined rates are Alaska at 1.76%, Hawaii at 4.44%, Wyoming at 5.36%, Wisconsin at 5.43%, and Maine at 5.5%.

Originally published at The Center Square. 

​Overview

• Texans face an affordability crisis from not only bad policies out of D.C. but also excessive government spending at the state and local levels, resulting in higher taxes than otherwise.
• While state and local governments cannot change President Biden’s costly regulations, Congress’ excessive deficit-spending, or the Federal Reserve’s over-printing of money, they can spend and tax less in Texas.
• To overcome these economic headwinds, state and local governments should pass frozen (no-growth) budgets, impose the no-new-revenue rollback rate on property taxes, return at least 90% of excess tax collections stolen from taxpayers to compress property tax rates until they are zero.
• Achieving this will help Texans with the affordability crisis and make Texas an economic juggernaut so that more people can prosper.

Texans for Fiscal Responsibility’s 3-Step Plan to Eliminate All Property Taxes

• Frozen State Budget of holding spending growth to zero so there is less intrusion of government in the private sector resulting in a maximum surplus available to provide property tax relief.
• Eliminate School District M&O Property Taxes with 90% of state surplus funds each biennium until nearly half of the total property tax burden is zero in just four years.
• Eliminate Other Property Taxes by passing a local spending limit, imposing the no-new-revenue rollback 

This paper was initially published by Texans for Fiscal Responsibility. 

​Iowa’s taxpayers deserve better constitutional protections against the unquenchable appetite for government spending. Stronger limits can ensure spending remains under control, especially when fiscally conservative policymakers are absent.

Introduction

Going into the 2023 legislative session, Iowa’s fiscal foundation is strong. The Revenue Estimating Conference (REC), which is a three-person collaboration between the governor’s office and the Legislative Services Agency, is tasked with the difficult job of coming to consensus on the projections the state will use for budgeting.

In December, the REC estimated revenue for fiscal year 2023 (FY23) at $9.6 billion. Governor Kim Reynolds used December’s estimate to plan her proposed $8.5 billion FY24 budget. Iowa’s fiscal foundation remains strong despite the national economic uncertainty because of the state’s fiscal conservatism and prudent budgeting.

The benefits of this approach are clear.  Iowa’s anticipated $1.6 billion surplus for FY23 is nearly as much as the $1.9 billion surplus in FY22, with another $2.2 billion surplus expected in FY24. The state should have $895.2 million in reserve funds in FY23 and $962.5 million in FY24 — the statutory maximum for each year. Additionally, the Taxpayer Relief Fund is on track to increase by $1.6 billion, to $2.7 billion, in FY23, with another increase of $662.6 million in FY24, to $3.4 billion.

In short, the state government of Iowa is awash in cash thanks to conservative budgeting. These policies must continue to provide substantial tax relief, and lawmakers can build upon their success by passing a state budget below the recommendation of the Iowans for Tax Relief Foundation (ITRF). Our 2024 Conservative Iowa Budget sets a maximum threshold for general funds of $8.8 billion, based on 7.4 percent rate of population growth plus inflation (see Figure 1). Governor Reynolds’ budget proposal meets this goal.  The House and Senate now must offer up their budget targets and then all three proposals will have to be meshed together.  Spending restraint when crafting the state’s budget is always important, as it protects taxpayer dollars now and in the future.

​Figure1.

Source: Condition of the State: Vision for Iowa, State Budget FY 2024, Governor Kim Reynolds and Lt. Governor Adam Gregg

​Going a step farther, the state should write the Conservative Iowa Budget principles into its constitution or statutory code. Thus, Iowa would assure residents and businesses that it will continue to improve as a place to live, raise a family, and start a business, which will in turn strengthen the state’s trajectory.

Recent Iowa Budget
In its Fiscal Policy Report Card on America’s Governors 2022, the Cato Institute ranked Governor Reynolds as the best in the nation. “Governor Reynolds has been a lean budgeter and dedicated tax reformer since entering into office in 2017,” wrote Chris Edwards and Ilana Blumsack, authors of the report.

Last year, Governor Reynolds and the Iowa Legislature continued to place a priority on prudent budgeting. The budget for FY23 was $8.2 billion, increasing by just 1 percent from the prior year.

In 2022, Iowa also enacted the most comprehensive income tax reform package in the nation — the largest in state history. Over four years, the nine-bracket income tax will transform into a flat tax with a 3.9 percent rate. The corporate tax will also gradually shrink until it reaches a flat 5.5 percent rate and has already been reduced from 9.8 percent to 8.4 percent. These measures constitute a sound pro-growth tax policy that will create incentives to work, save, and invest. On the national stage, this tax reform will make Iowa’s economy more competitive.

Prudent budgeting is essential toward ensuring these income tax rate reductions can be responsibly implemented. Even with national economic uncertainty, Iowa’s revenue continues to grow, reducing the degree to which the tax cuts must be “paid for” through spending restraint.

​Governor Reynolds has reaped additional benefits from a fiscally conservative agenda with an executive order imposing a moratorium on regulations. Furthermore, state agencies must begin reviewing existing regulations to determine their relevance and economic impact to ensure “existing rules — each and every one — are worth the economic cost,” as Governor Reynolds stated. “Only those that meet this standard will be reissued. The rest will be repealed. When it’s all said and done, Iowa will have a smaller, clearer, and more growth-friendly regulatory system.” Agencies have four years to complete the review process. The governor is also proposing to rein in the administrative state by streamlining government, consolidating the 37 cabinet-level agencies to 16. The process has already begun, and the governor’s office estimates consolidating agencies and other administrative reforms will save taxpayers close to $215 million over the next four years.

​Source: Condition of the State: Vision for Iowa, State Budget FY 2024, Governor Kim Reynolds and Lt. Governor Adam Gregg

Need for Stronger Spending Limits
Most states have some form of TEL in statute or (less commonly) in the state constitution. A strong limit can ensure spending remains under control, especially when fiscally conservative policymakers are absent. However, not all TELs are created equal. An effective limit should be determined by the average taxpayer’s ability to pay for the priorities of government, not the appropriator’s cost of providing them.

Iowa has a weaker spending limitation than many states: a fiscal rule in state statute restricting the legislature to spending no more than 99 percent of estimated revenue. Efforts in the Iowa Legislature to strengthen this limit have proven unsuccessful, so far. Most recently, the Iowa Senate passed Joint Resolution 9 in 2017. This constitutional amendment would have limited the annual increase to the lesser of 99 percent of the estimated revenue or 104 percent of the prior year’s revenue. (Historical comparisons including the existing and proposed rules are visible in Figure 3 below.)

Iowa’s taxpayers deserve better constitutional protections against the unquenchable appetite for government spending. Families and businesses must make difficult budget decisions on a regular basis; this experience should not be so rare in government. With spending limitations in place, argues economist Daniel J. Mitchell, “politicians are forced to abide by the rules that apply to every household and business in the state. In other words, they have to prioritize,” 

Colorado has shown this principle in practice. In 1992, voters adopted the Taxpayer Bill of Rights (TABOR), which was a constitutional amendment limiting government spending of most general funds at the state and local levels to a maximum rate of population growth plus inflation. Voters must also consent to spending increases above that level. If revenue exceeds the limit, the money returns to taxpayers as tax rebates. Unfortunately, progressives have weakened Colorado’s TABOR over time, and the tax rebates have encouraged dependency on government rather than translating into tax rate cuts. Nonetheless, since its enactment, TABOR has returned $8.2 billion to taxpayers.

Other states enacted measures similar to TABOR, proving that different approaches can be successful. Kurt Couchman, a Senior Fellow with Americans for Prosperity, argues that a “rules-based structural balance is a promising alternative,” focusing on the following:

• Potential GDP growth
• Personal disposable income growth
• Personal income growth
• General economic growth

“Structural balance can provide both short-term policy stability and long-term fiscal responsibility,” according to Couchman, putting pressure on the growth of spending and utilizing debt brakes and revenue limits

Texas also has implemented a strong spending limitation. In 2021, the legislature codified a new spending limit in SB 1336, which is arguably now the strongest in the nation. Based on the Texas Public Policy Foundation’s Conservative Texas Budget, the new spending limit sets a cap on all general revenue based on the rate of population growth and inflation. Exceeding the cap requires a three-fifths vote in both chambers of the legislature. “This change effectively puts tax relief on Texas’ permanent agenda. Policymakers can lock in tax relief by tying Texas’s future fiscal surpluses to automatic tax cuts,” writes Michael Lucci, a senior fellow at the State Policy Network.

Because spending and tax limitations can take various forms, Matthew Mitchell, now a senior fellow at the Fraser Institute, contends the most effective will:

• Use a formula based on the sum of inflation plus population growth
• Be based upon spending rather than revenue
• Require a supermajority, rather than a majority, of lawmakers to be overridden
• Immediately refund revenue collected in excess of the limit
• Appear in the state constitution rather than in statute

Joining these guidelines with the examples described above, the ideal limit would cover the broadest base of the budget possible, with a maximum growth rate limited to population growth plus inflation. It would also return the resulting surplus funds to taxpayers through reduced tax rates, not tax rebates. Such a policy would give Iowa the strongest spending limit in the nation and solidify responsible budgeting in law for a consistent, predictable future.

President Calvin Coolidge regarded “a good budget as among the noblest monuments of virtue,” and it is incumbent upon Iowa’s lawmakers to be virtuous in this way.

Historical Iowa Budget
Figure 2 compares Iowa’s General Fund increase over the past decade with the state’s population growth plus inflation, as measured by the U.S. Chained Consumer Price Index (CPI). While the growth of appropriations has been below this benchmark for the full period, that result is attributable solely to the fiscal responsibility of the last four years.

Figure 2.

The relative recency of this proper balance places a spotlight on the need to implement policy to prevent backsliding.
Figure 3 illustrates the current statutory spending limit’s failure to control appropriations over time. Its weakness has allowed excessive growth in the budget over time. The figure also shows that Senate Joint Resolution 9 would also have been insufficient.

​Figure 3.

​In contrast to Iowa’s existing revenue-focused method, setting a spending limit that tracked with population growth plus inflation would have provided even more restraints on the expansion of government since 2013, leading to more conservative budgets and greater opportunities for tax relief. In fact, actual budget growth above this measure has been a cumulative $2.9 billion since 2013, meaning that taxes Iowans paid over that time period could have been at least $2.9 billion less . Put differently, an average family of four has paid nearly $3,700 more in taxes than if the state had adhered to a different spending limitation.

Conservative Iowa Budget
Iowans are fortunate that in recent years the governor and legislature have been budgeting in the spirit of the Conservative Iowa Budget. Even without a stronger state spending limit, the fiscal discipline exhibited by lawmakers has contributed to large surpluses and tax reforms and relief. To continue this conservative trend, ITRF is releasing the FY24 Conservative Iowa Budget with a maximum threshold of $8.5 billion, based on the summed rate of 7.4 percent. This target combines the 0.2 percent rate of state population growth with the 7.2 percent rate of U.S. chained-CPI inflation in 2022. Holding the Iowa state government’s budget to this level will provide opportunity for tax relief in the face of economic headwinds from bad policies out of D.C. A 40-year-high level of inflation (without corresponding wage growth) and market corrections responding to Congressional overspending, President Biden’s overregulating, and the Federal Reserve’s overprinting of money, make well-considered and consistent tax policy imperative.

Conclusion
Iowa has been at the forefront of conservative budgeting in the United States. This approach has left more money in taxpayers’ pockets with a substantial tax relief package headed toward a low flat tax by 2026. This process must continue to ensure Iowans’ flourishing.

​Fortunately, Governor Reynolds’s FY24 budget proposal continues her practice of fiscal prudence. Limits on spending will be paramount for further income tax reform, and the governor has already signaled that Iowa will not be complacent at 3.9 percent. Talk of lowering the income tax rate to a flat 2 percent with a pathway to eventually eliminating the tax keeps the focus where it ought to be. Rejecting complacency is important when it comes to state-government spending, too. A stronger spending limit will not only help to protect the interests of taxpayers, but it will also keep the growth of government in check. On its current path, Iowa can expect a robust economy, a flourishing civil society, and prosperous people, but the work of getting government out of the way while funding basic services is not complete.

​Originally published at Iowans for Tax Relief Foundation.

​Fairness, like beauty, is in the eye of the beholder. This popular sentiment is certainly true in a free market where buyers and sellers determine prices instead of a third party picking winners and losers. Unfortunately, taxes in Louisiana and other states get caught up in this subjective determination when the questions that really matter are what will help more Louisianans stay in the state, and what will bring them well-paying jobs along the way?

​A recent presentation by Together Baton Rouge before Louisiana’s House Ways & Means Committee made the case that the state’s tax code is unfair. They pointed to research by the left-leaning Institute on Taxation and Economic Policy (ITEP), which considers the distributional effects of tax systems in each of the 50 states. And as you’d expect, ITEP considers those states without a personal income tax as the most regressive because low-income earners tend to pay a larger share of income to taxes than upper-income earners. The fact, however, is that the majority of Louisiana’s individual income tax revenue is paid by middle and higher-income earners, as reported by the Louisiana Department of Revenue in its annual report.

​ITEP’s analysis finds that “Louisiana has the 14th most unfair state and local tax system in the country.” And while that’s true in many respects, it’s not necessarily because of rising income inequality as some suggest.

Recent Census data show that people are continuing to leave Louisiana. This is a drain on innovation and job opportunities, so there’s less incentive for businesses to stay.

Why would the state resort to trying to smooth the distribution of income, which would inevitably mean raising taxes on entrepreneurs who start businesses and hire workers? Instead, lawmakers’ next steps should be to restrain spending and flatten income taxes until they can be eliminated.

This process was started in 2021 by lowering all the personal income tax rates, further stipulating that future increased revenue should “trigger” even lower income tax rates, which could potentially go into effect beginning next year. The state is currently seeing record levels of revenue. In fact, Louisiana is set to have an additional $1.6 billion to use in this fiscal year alone, and there is already an increase of $600 million above current revenue expected for the next fiscal year.

But there is a lot of uncertainty surrounding whether the state will hit its revenue targets in future years due to economic downturns and record spending increases. If it does, the state would benefit from the lower tax rates by fueling economic growth. More should be considered in the 2023 legislative session beyond just cutting existing rates. Lawmakers should consider flattening income taxes to just one bracket with a single, low rate for everyone. This is what research has proven effective to incentivize people to work and take risks, much more so than continually taxing their innovative prosperity.

Given these factors, a flat income tax would help everyone who pays taxes have skin in the game instead of trying to pick winners and losers. Higher-income earners would still pay much more in taxes with a flat tax rate because their income is higher.

Fairness can be a factor, but it shouldn’t be the overarching factor when deciding tax law. The best taxes are those that are broad-based with the lowest flat rate possible, and ultimately without income taxes. This would be fair to workers and the flourishing of Louisianans for many years to come.

Originally published at Pelican Institute. 

​California Gov. Gavin Newsom boldly — and a wee bit desperately — ran ads last summer encouraging Florida residents to relocate to California . Housing affordability is one reason it probably won't work.

Housing affordability has been a major factor driving Californians to states such as Texas and Florida, where they can realistically afford the American dream of owning a home.

​Cost of living — which is mainly a housing problem — and taxes round out the top motivations for fleeing the once-growing states such as California. The states that win on housing affordability from free-market-oriented policy win overall.

Twenty years ago, few would have bet on a mass exodus of residents from the popular albeit highly regulated housing market in California. Issues related to land use, zoning, and bureaucratic chaos led to substantially higher housing costs.

The five most expensive housing markets  nationwide are all within California. Further, a recent Hoover Institution report found that one of the top reasons companies leave California is “... high living costs, particularly the cost of housing affordability.” In the same vein, C2ER finds that California’s housing costs are about 1.7 times greater than Florida’s and 2.2 times higher than Texas’s.

​This contributes to California suffering losses of big businesses (11 Fortune 1,000 companies) between 2018 to 2021, along with small, quickly growing companies.

Texas and Florida have figured out the secret to housing affordably through free-market policies that help entrepreneurs address challenges to build more homes in a safe, less costly manner.

The recent census report shows how Florida drew the most net new domestic residents  (318,855), with Texas coming in second (230,961). Many people packed up and moved to states with “lower taxes, more affordable housing and a higher standard of living.” What’s more, Texas came in first in overall population growth (470,708), with Florida second (416,754).

These states are the ones that tend to let builders build more freely than the others. The Wharton Residential Land Use Regulation Index , one of the most respected analyses of the effect of regulation on price, shows a strong, positive correlation between house prices and over-regulation.

​Take, for example, San Francisco, where it takes 861 days to get a permit for one residential home. In Houston, it takes just 15 days . That’s huge savings for homebuilders and, therefore, homeowners.

For Texas to remain competitive, it must guard against bureaucratic bottlenecks like those developing in Austin, where simply getting residential site plans approved now takes one to two years .

To remain prosperous, Texas must keep and improve on free-market principles, especially in housing. Otherwise, the resulting higher costs of living will force people and businesses elsewhere.

Florida has done a good job winning the war against excessive regulation to make way for more home construction. In 2019, the Sunshine State passed a law allowing third parties to help streamline the permitting process, alleviating wait times for home construction. In 2021, it passed a shot-clock law that effectively limited permit responses by cities to no more than 30 days.

It’s not complicated: The states and cities that will prosper in the coming decade will be those that allow a less regulated housing market so the quantity of housing supplied can efficiently meet the quantity demanded.

For states that plan to attract business while retaining residents, they must improve the regulatory environment for builders by getting out of the way.

This should include streamlining building regulations to make it easier to build new housing, reforming land use policies to encourage development, and sorting out the bureaucratic bottleneck that complicates the building process.

Like musical chairs, if you have fewer chairs than people, some people have to find a new home … or a state.

Vance Ginn, former associate director for economic policy in the White House Office of Management and Budget, is president of  Ginn Economic Consulting, LLC , chief economist at Pelican Institute for Public Policy, and senior fellow at Young Americans for Liberty. Nicole Nabulsi Nosek is the founder and chair of Texans for Reasonable Solutions.

Originally published at Washington Examiner.