Archive for June, 2015

Louisiana’s Budget — The Norquist Wriggle

| NEW ORLEANS | The Economist

EVEN in a place inured to budget trickery, the stratagem was absurd. Louisiana’s treasurer, John Kennedy, called it “nonsense on a stick”. He was referring to the “tax credit” that would apparently balance Louisiana’s budget for the coming fiscal year, closing a deficit gap of $1.6 billion.

This was the plan. The state’s cigarette tax, the third-lowest in the country, would be raised substantially, with the proceeds going to higher education. But rather than declare it as a tax increase, the state would create a phantom fee of about $1,600 applied to each of its 220,000 university students. The students would not actually pay the fee, because it would come with a matching tax credit. This credit would then be handed over to the universities, which would in turn receive the actual money generated by the cigarette-tax increase and a few other things.

Louisiana’s governor, Bobby Jindal, who is expected soon to leap into the crowd of Republican presidential hopefuls, is desperate to be among the fiscally untainted. Since April he has been wrestling with the problem of how to close the budget gap without either raising taxes, which would inflame Mr Norquist, or inflicting further damage on programmes like higher education. Louisiana’s colleges, on his watch, have already sustained some of the deepest cuts in the country.

A simple solution might have been to pare back some of the state’s lucrative and questionable tax breaks for business. But Mr Norquist would frown on that. According to his rules of engagement, any legislative change that results in extra revenue—even eliminating a poorly crafted giveaway—is a tax increase. In February (as furious legislators point out, before he had consulted them), Mr Jindal sought advice privately from the guru himself.

As a result, in came the SAVE Act, an acronym for “Student Assessment for a Valuable Education”. (One legislator moved to amend its title to the DUMB Act, for “Don’t Understand Meaning of Bill”.) Mr Norquist has previously blessed tax increases, provided they are paired with offsetting cuts that make the whole package revenue-neutral. He therefore gave the nod to Louisiana’s contrivance.

Even the legislators who backed the bill cringed at it, and admitted it served only to protect Mr Jindal’s anti-tax credentials. A group of ten Republican legislators, including four who had signed the ATR pledge, added their names to a letter to Mr Norquist written by Joel Robideaux, the chairman of the Ways and Means Committee of the Louisiana House. The letter, released to the media, tartly noted that the SAVE Act was a “purely fictional, procedural, phantom, paper tax credit”, and asked Mr Norquist whether he really endorsed it. He replied, the next day, by saying that the SAVE Act was Louisiana’s creation, not his. If the conservatives didn’t want to use that workaround to balance the books, he suggested, they should make cuts elsewhere.

In the end, lawmakers held their noses and voted for a budget that included SAVE, after Mr Jindal made it clear that he would veto the package otherwise. It was quite a spectacle. One of the bill’s chief backers, arguing for its adoption, sold it thus: “Our love for higher education is greater than the embarrassment over the instrument.”

Although Messrs Jindal and Norquist won the battle, it is unclear whether they have won the war. The episode has soured many Louisianian lawmakers on ATR for good. Add in resentment at having to please a Washington power-broker, rather than local constituents, and it seems that Mr Norquist may well have pushed his anti-tax crusade too far.