Louisiana HB 63 Goes Up In Smoke

Earlier today Louisiana HB 63 went up in smoke after it failed to pass out of the stateâ??s House Ways and Means Committee. The wide-ranging tax increase bill essentially sought to increase taxes on all tobacco products by at least 50% by:

  • Repealing the sunset on a portion of the tax on cigarettes thereby making that portion of the tax on cigarettes permanent;
  • Increasing the tax on cigars invoiced by the manufacturer at $120 per thousand or less from 8% up to 12% of the invoice price, and increase the tax for cigars invoiced by the manufacturer at more than $120 per thousand from 20% up to 30% of the invoice price;
  • Increasing the tax on smoking tobacco (cigarettes) from 33% up to 49.5% of the invoice price; and
  • Increasing the tax on smokeless tobacco from 20% up to 30% of the invoice price.

According to The Times-Picayune, HB 63 received strong criticism from a coalition of tea party groups, businesses and Governor Jindal himself. Rina Thomas, a Jindal aide, told the Committee earlier today that cigarette tax increases â??would be contrary to the work (policymakers have) done over the last three years (to cut taxes.)â? The billâ??s sponsor (Rep. Ritchie) voluntarily deferred the bill after realizing he had â??nowhere nearâ? the seventy requisite votes to override Gov. Jindalâ??s veto.

Separately Rep. Ritchie sponsored HB 591, which would exclusively repeal the sunset clause for the temporary four-cent levy on cigarettes set to expire January 30, 2012, and passed out of the House Ways and Means Committee on a 10-5 vote. Gov. Jindal also opposes HB 591, arguing intervention by the legislature to repeal the sunset clause constitutes a tax increase.

Tobacco taxes are a convenient target. In fact they are often considered â??low hanging fruitâ? because politicians increase taxes under the false pretense of good intentions. However increasing tobacco taxes wonâ??t solve Louisianaâ??s budget deficit.

Gov. Jindal has the right idea here, and is pursuing effective governance over political convenience in addressing Louisianaâ??s $1.6 billion budget deficit. Gov. Jindal was recognized in Reason Foundationâ??s Annual Privatization Report 2010: State Government Privatization for being a national leader on innovative policy solutions. Below are some government reform highlights from Louisiana (including several proposed by the stateâ??s Commission on Streamlining Government):

  • In March 2010, the Louisiana Department Of Administration (LDOA) announced the privatization of property and casualty claims management and loss prevention services, a move expected to result in estimated savings of at least $20 million over five years;
  • LDOA is engaged in a three-year program to reduce the state vehicle fleet by 10% per year over the next three years, expanding existing rental car contracts and divesting portions of its vehicle fleet; and
  • The Louisiana Department of Health and Hospitals (DHH) is implementing privatization initiatives in developmental disabilities, mental health and substance abuse treatment projected to cut costs by over $50 million in 2010.

The Pelican Stateâ??s government downsizing efforts have prompted all three major credit rating agencies to upgrade Louisianaâ??s bond rating since 2009â??at a time when other states have seen downgrades given their shaky fiscal healthâ??and the agencies specifically cited the stateâ??s focus on spending control and streamlining as influencing factors. A higher credit rating alone will save Louisiana taxpayers millions in avoided interest costs over time.

Rather than raise taxes, Louisiana policymakers should continue to focus on implementing recommendations from the stateâ??s Commission on Streamlining Government. For more ideas, see the American Legislative Exchange Councilâ??s State Budget Reform Toolkit, which contains a broad range of creative policy solutions.