The Louisiana legislature convened its 2015 session last week. Balancing the state’s budget, which faces a projected $1.6 billion deficit, is the top item on the docket this session. Aside from balancing the budget without raising taxes, Louisiana lawmakers could make their state more economically competitive this year by repealing local inventory taxes, which put the state at a tremendous disadvantage.
Recognizing this, Americans for Tax Reform sent the following letter to members of the Louisiana Senate Revenue and Fiscal Affairs Committee encouraging them to repeal the highly debilitating local inventory tax:
April 17, 2015
To: Members of the Louisiana Legislature
From: Americans for Tax Reform
Dear Members of the Louisiana Legislature,
On behalf of Americans for Tax Reform and our supporters across Louisiana, I encourage you to keep taxpayers in mind as you work to balance the budget during the 2015 session. Aside from balancing the budget without raising taxes, one of the best things you can do for the state economy during the 2015 session is repeal the local inventory tax, which is one of the most distortive and anti-growth taxes a government can have on the books.
Inventory taxes are one of the most unsound and economically-damaging forms of taxation, which is why just over a dozen states have them and many states have repealed them in recent years. Rather than focus on maximizing commerce, inventory taxes force employers to instead make decisions based on minimizing their tax burden. Inventory taxes put some businesses at a disadvantage relative to others. They are particularly harmful to large retailers and any other Louisiana businesses that store large quantities of merchandise. Because of the inventory tax, businesses have a great incentive to shift inventory to shipping and storage facilities in other states.
As you know, to make up for the damage done by the local inventory tax, the state provides a state tax credit to businesses that pay it. Rather than have the state try to make up for bad tax policy at the local level, Louisiana legislators would better serve the state by repealing local inventory taxing authority, thereby eliminating the need for a state credit. Allowing local officials to make up the revenue through a less harmful form of taxation, spending restraint, or a combination of the two, would make Louisiana a more attractive place to locate a business, invest, and create jobs.
There will be many calls for higher taxes in the coming weeks. Avoiding tax increases isn’t just good politics, it’s good policy. Tax Foundation economist William McBride reviewed academic literature going back three decades and found that “while there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions and monetary policy.”
In McBride’s survey of 26 studies dating to 1983, he found “all but three of those studies, and every study in the last 15 years, find a negative effect of taxes on growth.” John Hood, chairman of the John Locke Foundation, analyzed 681 peer-reviewed academic journal articles going back to 1990 and concluded that keeping state and local tax and regulatory burdens as low as possible promotes economic growth. “Most studies find,” Hood discovered, “that lower levels of taxes and spending, less-intrusive regulation correlate with stronger economic performance.”
Your constituents have already been hit with the more than 20 federal tax increases signed into law by President Obama in recent years. Piling on with further tax increases at the state level will hinder economic growth and add insult to injury. I urge you to make the most of this session by eliminating the inventory tax and balancing the budget without raising taxes, both of which would greatly benefit individuals, families, and employers across Louisiana. Americans for Tax Reform will continue to follow these issues closely throughout the session and will be educating your constituents as to how you vote on this important matter. If you have any questions, please contact Patrick Gleason, ATR’s director of state affairs, at (202) 785-0266 or [email protected].
Grover G. Norquist
President, Americans for Tax Reform