Louisiana Tax Credits: Politicians Picking Winners and Losers

July 11, 2009

Lousiana Gov. Bobby Jindal (R) signed a series of tax-related bills yesterday filled with targeted tax credits:

  • $11.6 million for R&D credits
  • $100 million over five years for film tax credits
  • $25 million over five years in tax credits for ports
  • $12 million over five years in tax credits for music recording companies
  • $164,000 in tax credits for converting automobiles to “clean-burning” fuels
  • A firearms “sales tax holiday”

These giveways to the well-connected (plus a gimmicky sales tax holiday) are unfortunate, since Jindal and Louisiana legislators earlier made good strides on tax reform. (See here for a video explaining some of these earlier successes, from the Pelican Institute‘s Jeb Bruneau.) Any good economist will tell you that these new and expanded tax credits aren’t much different from spending programs. While officials are rolling out the red carpet for the industry-of-the-moment, other in-state employers are taken for granted and stuck paying higher taxes.

In his signing statement, Jindal argued that the bills “ensur[e] that we not only have the ability to remain economically competitive, but that we can continue to move our state forward by making Louisiana the greatest place in the world to find a great paying job and raise a family.” I’m not sure how using the tax code to hand out millions of dollars to connected industries will achieve that. Jindal made headlines earlier this year by criticizing the federal stimulus package, but his attitude here seems to be that government shifting resources to certain select industries is the key to economic growth.

Lawmakers, trying to be mindful of their states’ business tax climates, are often tempted to lure business with lucrative tax incentives and subsidies, instead of pursuing broad-based tax reform. The truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate. Louisiana’s failure to address that core problem, and instead paper over it with targeted tax credits, is the path of economic basket-cases like Michigan and Ohio. Businesses should be treated the same, and politicians shouldn’t be in the position of picking winners and losers.

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More on Louisiana here.

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.