Unless the Revenue Study Commission’s report on the state’s tax structure is destined to become just another government study that gathers dust, it must address one significant fact: that for every dollar in the state’s budget, 21 additional cents is given away in tax incentives, exemptions and credits.
The report is scheduled to be released sometime shortly after the first of the year.
The state, as has been the case the past several years, is facing a budgetary shortfall of about $1 billion for Fiscal Year 2013-14 and the Jindal administration on Friday, Dec. 14., announced another budget cut, this one $166 million—all in health care for the poor.
For the current budget of $25 billion, the state each year gives away almost $5 billion in various tax breaks which range from enterprise zone credits to 10-year property tax exemptions to sales and use tax rebates.
Louisiana corporate and industrial tax incentives were only $59 million as recently as 2001. The surge, of course, translates to less revenue in the state budget but Gov. Piyush Jindal has refused to offset the revenue losses with increased taxes elsewhere, choosing instead to cut services. As a consequence, higher education and health care have incurred devastating cuts.
Put another way, the Jindal administration continues to insist on transferring money from education and health care to businesses.
Louisiana commits $394 for every man, woman and child each year in tax breaks to manufacturers, retail outlets and movie production companies through the Louisiana Office of Economic Development (LED).
• LED FastStart, which creates customized employee recruiting, screening and training solutions for eligible companies;
• Angel Investor Tax Credit of up to 35 percent for start-up and expansion investors;
• Digital Interactive Media and Software Development Incentive;
• Enterprise Zone tax credits of $2,500 for each new job created;
• Industrial tax exemption of 100 percent for up to 10 years on new manufacturing investment;
• Motion Picture Investor transferrable tax credit of up to 30 percent;
• Musical and Theatrical Production tax credit of 25 percent to 35 percent;
• Ports of Louisiana investor tax credit program to promote Louisiana ports;
• Quality Jobs program that offers up to 6 percent in rebates on annual payroll expenses for up to 10 years;
• Research and Development tax credits of up to 40 percent to existing businesses;
• Restoration Tax Abatement of 100 percent for five years for rehabilitation of existing structures;
• Sound Recording Investor Tax Credit of 25 percent;
• Technology Commercialization Credit and Jobs Program offering a 40 percent refundable tax credit and a 6 percent payroll rebate for firms that invest in the commercialization of Louisiana technology.
The New York Times recently conducted an extensive investigation into state tax incentives that revealed that Louisiana’s $1.79 billion in business tax breaks ranks 11th in the nation.
Local governments give up $9.1 million per hour ($80 billion per year) in tax incentives to business and industry, according to the Times story.
Movie maker Oliver Stone criticizes subsidies to industries but defends similar subsidies for movie production, the story noted.
Moreover, the $394 per capita cost is eighth highest in the U.S. and the 21-cent cost per state budget dollar is seventh highest in the country.
That $1.79 billion includes $1.61 billion in corporate income tax credits, rebates and reductions and $75 million in property tax abatement.
But one thing the Times story neglected to point out in its report is that the $1.79 billion in corporate tax breaks represents only about 40 percent of the total tax breaks given by Louisiana through other exemptions, including those for hazardous waste disposal, gift taxes, inheritance taxes, sales taxes on alcoholic beverages, tobacco, food and prescription drugs.
Only six other states had a higher ratio of tax incentives to state budget. Texas granted 51 cents per state budget dollar in corporate tax incentives. Following, in order were Nebraska (39 cents), Oklahoma and West Virginia (37 cents), Vermont (31 cents) and Michigan (30 cents).
Not surprisingly, Texas has the most corporate tax exemptions with $19.1 billion.
But Louisiana, like so many other states has plunged headlong into the ever-escalating race for industry and jobs and again, like other states, has placed a tremendous strain on state finances.
The current obsession with tax breaks began with the repeal of the Stelly Plan in Gov. Piyush Jindal’s first few months in office in 2008, a move that has cost the state approximately $300 million per year.
The repeal of the Stelly Plan, according to Jindal, was supposed to save individual taxpayers between $500 and $1,000 per year. But to save $500, a single filer would have to earn as much as $90,000 and joint filers would have to make more than $150,000 a year to save $1,000.
But the revenue losses caused by the ill-advised repeal of the Stelly Plan are dwarfed by the losses to the state treasury that have resulted in corporate tax incentives granted for projects that have produced few or no jobs.
In 2011, for example, the Board of Commerce and Industry approved exemptions totaling more than $2 billion in enterprise zone and property tax exemptions for new and expanded businesses that produced a mere 7,300 jobs, many of those low-salaried jobs.
But not even those comparatively few jobs turn out to be permanent.
• The Ormet Corporation kicked about 200 of its employees in Ascension Parish to the curb in November, only about a year after receiving tax credits worth about $1 million and a performance-based loan of $1.5 million from the state.
• International Paper Co. received more than $55 million in tax breaks while creating only 107 new jobs over the four-year period from 2008-2011. But that did not prevent IP from shutting down its plant in Bastrop in 2008 and another in Minden last May, putting 610 employees out of work.
• The $26.3 million in tax incentives received from the state by General Motors in 2008 and 2009 produced no new jobs and worse, failed to prevent closure of its Shreveport plant which sent 950 workers to the unemployment lines.
• Dow Chemical continued taking tax incentives from the state, even after announcing in 2009 that 2,500 workers would lose their jobs when three Louisiana plants that make ethylene and derivatives would close. Over the four years from 2008 through 2011, Dow accepted $70.3 million in tax incentives that resulted in not a single new job.
That could be because many established plants submit applications for renewals of existing 10-year exemptions, citing plant modernizations or improvements as justification for the continued tax break when in reality, many of the so-called modernization projects involve little more than landscaping, changing a few light bulbs or similar routine maintenance projects.
But even worse is the gnawing appearance of quid pro quo. Many recipients of the state’s generous tax incentives also made generous campaign contributions to Gov. Piyush Jindal.
In all, 29 separate entities received 32 tax exemptions totaling $774 million over the four-year period. Those same 29 have made $135,700 in campaign contributions to Jindal.
Some of the recipients, followed by total tax breaks and campaign contributions to Jindal, include:
• CLECO ($169 million, $14,000);
• Calumet Lubricants ($105 million, $1,000);
• Dow Chemical ($70.3 million, $13,000);
• Exxon/Mobil ($13.3 million, $11,000);
• Century Tel ($24.6 million, $5,000);
• The Coca Cola Co. ($23.9 million, $2,500);
• PPG Industries ($23.2 million, $1,000);
• Marathon Oil ($27.7 million, $11,000);
• Monsanto Co. ($38.7 million, $5,000);
• Conoco Phillips ($37.2 million, $5,000);
• General Motors ($26.7 million, $2,500);
• Stupp Corp. ($25.9 million, $6,000);
• DuPont ($21.3 million, $1,000);
• Select Energy ($14.3 million, $5,000);
• Dynamic Industries ($13.6 million, $5,000);
• General Electric ($11.2 million, $5,000);
• Syngenta Crop Protection ($11 million, $1,000);
• Georgia Pacific ($10.7 million, $4,200);
• Targa Midstream Services ($7.88 million, $5,000);
• Weyerhaeuser ($3.98 million, $5,000);
• Bollinger Shipyards and affiliated companies ($9.36 million, $63,850);
• Chevron ($3.7 million, $1,000);
• Rouse’s Enterprises ($3.48 million, $5,000);
• The GEO Group ($3 million), $5,000);
• Wal-Mart ($2.59 million, $5,000);
• Walgreens ($2.59 million, $5,000);
• Bruce Foods ($2.5 million, $4,500);
• Turner Industries ($2.42 million, $5,000);
• Boh Brothers ($1.76 million, $1,000);
In addition to campaign contributions, which are limited to $5,000 per individual per election cycle, several of the recipients of tax incentives have contributed even more generously to the Supriya Jindal Foundation, established by Jindal’s wife six months after Jindal took office.
Among the contributors are charter members (who give a minimum of $250,000) Marathon Oil, Dow Chemical and Wal-Mart.
Chevron is among the foundation’s Platinum members who pledge a minimum of $50,000.
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