Louisiana Gov. Bobby Jindal’s efforts to conceal a series of tax increases might not only undermine his presidential ambitions; the bizarre scheme he forced upon the state’s legislature to do it could eventually compromise the renowned anti-tax increase pledge created by Grover Norquist of Americans for Tax Reform (ATR).
In the legislative session that ended late last week, Louisiana lawmakers passed $750 million in tax hikes to address a $1.6 billion revenue shortfall that threatened to close the state’s universities and cripple its publicly funded hospitals.
Those tax increases have angered some business leaders, whose companies will pay most of those higher taxes. In most cases, Jindal and legislators trimmed what the governor called “corporate welfare,” eliminating or suspending hundreds of millions in business tax breaks and refundable tax credits that some policy experts believe had compromised the state’s fiscal health while spurring meager economic growth. The business community’s opinion to the contrary, Norquist and ATR staff members advised Jindal that cuts to refundable credits were not tax increases.
That’s when Jindal and his staff proposed a convoluted, confusing student fee/tax credit “offset,” devised only so Jindal could claim his actions were “revenue neutral” and, therefore, did not increase taxes. With Norquist’s approval, Jindal pushed the so-called Student Assessment for a Valuable Education (SAVE) Credit Program.
Here is how the The Advocate of Baton Rouge explained this peculiar scheme:
It would assess a fee of about $1,500 per higher education student and raise about $350 million total, but only on paper. Students wouldn’t have to pay anything because [of] an offsetting tax credit for the $1,500. Nor would universities receive any new money.
However, the SAVE fund would create a tax credit for the $350 million that Jindal could use to offset $350 million of the new revenue that legislators are proposing to raise.
In other words, some of the revenue generated by the tax hikes will be deposited into a special state fund for higher education. Students enrolled in Louisiana universities will be assessed a phantom fee and awarded a corresponding phantom SAVE tax credit. Their schools will use those credits to draw down the funds in the higher education fund.
Voilà! A net tax increase is suddenly “revenue neutral” by virtue of the phony fees and credits.
Jindal’s SAVE bill is a scam – and everyone in the state capitol knows it. "SAVE is a misuse of the tax system,” the non-partisan Public Affairs Research Council of Louisiana said in a report on the state’s budget. “It is being used merely to masquerade and promote tax increases.” The New Orleans Times-Picayune dubbed it a “silly charade.” The Advocate called it “a completely dishonest fee/credit scheme.”
Lawmakers might have simply raised additional revenue and given the money it to the state’s universities – which is, essentially, what they will be doing, but only after piping it through Jindal’s wacky, Rube Goldberg device that exists only to provide the patina of revenue neutrality.
Jindal, of course, has already touted his success in balancing Louisiana’s budget without raising taxes (compounding his fiscal irresponsibility, he also used $600 million in non-recurring revenue). In a fundraising email sent to supporters on June 12, Jindal bragged, “Yesterday in Louisiana, we came together to pass a balanced budget that protects higher education and health care. And we did it without a tax increase.” [Emphasis Jindal]
Boasting about his tax purity might protect Jindal for a while, but in pushing SAVE, he and Norquist may have doomed the anti-tax-increase pledge and, perhaps, ATR’s future. In a few years, if Norquist’s pledge becomes a discredited relic, historians might consider Jindal’s actions in the 2015 session the beginning of ATR’s end.
That’s because SAVE could embolden legislators and governors in other states to hike taxes by creating Jindal-like counterfeit fees and credits. Employing Louisiana’s innovation, legislators everywhere can now employ the subterfuge of phony offsets and claim revenue neutrality (a key component of the Norquist no-tax-increase pledge).
You don’t believe me? Consider what the Republican chair of Louisiana’s House Ways and Means Committee told Norquist. "If enacted into law, this bill would successfully and irreparably establish the precedent that future legislatures and Governors can raise taxes on a nearly unlimited basis, and then claim revenue neutrality solely based on the creation of a purely fictional, procedural, phantom, paper tax credit," Rep. Joe Robideaux, R-Lafayette, wrote in a June 8 letter to Norquist, signed by nine other Republican House members.
Pleading with Norquist to withdraw his support for SAVE (he didn’t), Robideaux continued: “This dangerous precedent was openly acknowledged in sworn testimony before the House Ways and Means Committee, when a representative of the [Jindal] administration agreed that the same type of credit could be created for any functional segment of the budget, allowing tax increases of up to $8 billion to be classified as revenue neutral as a matter of law and policy.” [Emphasis Robideaux]
News about the usefulness of this Jindal-Norquist offset scheme will spread quickly, as will the dishonest nature of what Jindal, with Norquist’s approval, accomplished. As other governors and legislatures try to raise taxes using similar types of subterfuge, Norquist will be forced to disown the scheme – or his no-tax-increase pledge will lose most, if not all, of its authority.
In the process, Jindal will also be exposed as a dissembler. In Louisiana, he already has that reputation. He is one of the nation’s least popular governors. His slavish loyalty to Norquist and his maddening fealty to the pledge in service of his presidential ambitions angered legislators of both parties. Most of the Legislature’s Democrats fought the SAVE bill. But many Republican lawmakers did, too. Led by Robideaux, the Republican-controlled House Ways and Means Committee rejected it. House members only passed it under duress in the session’s final hours as part of a take-it-or-leave-it conference report. (The Senate, less willing to challenge Jindal, approved it by a large margin.)
Even some of the bill’s strongest supporters openly expressed embarrassment for backing the bill, but warned of the budgetary chaos if Jindal honored his threat to veto the tax increases without the accompanying SAVE “offset.” The Republican state treasurer, John Kennedy, called SAVE “nonsense on a stick,” but still urged lawmakers to approve it. Kennedy and others have argued that lawmakers and the next governor will repeal the bill as one of their first acts of the 2016 session.
In Louisiana, however, the ATR pledge is dead. Jindal helped killed it when his loyalty to Norquist became more important than his integrity and the state’s fiscal health. All four major candidates to replace Jindal in the current governor’s race have said they would reject the pledge if elected governor. Three of those candidates are Republicans. One is U.S. Sen. David Vitter, among the Senate most conservative members, who previously signed it.
Jindal seems to believe that raising taxes is potentially more deadly to his presidential aspirations than any dishonesty about his role in increasing those taxes. Given that Jindal is hopelessly mired at the back of the GOP pack at 1 percent in most polls, it’s not likely that the SAVE episode will hurt his flagging presidential campaign.
The real impact of what should be called “the Jindal-Norquist Tax Cover-up Bill of 2015” may be the eventual destruction of ATR’s anti-tax increase pledge. If that’s the case, the ironically named SAVE bill may end up being Jindal’s greatest and most praiseworthy accomplishment as Louisiana’s governor.