Bobby Jindal finds the promised land of conservative tax policy

Bobby promoting a plan to raise $526 million without a tax increase. His trick: Turn refundable business credits into non-refundable credits.

Politicians looking to “enhance revenue” without raising taxes might want to take a close look at Louisiana, where Governor Bobby Jindal may have found the promised land of conservative tax policy. He’s promoting a plan to raise $526 million without a tax increase. His trick: Turn refundable business credits into non-refundable credits.

With a refundable credit, firms benefit from the subsidy even if their tax liability is zero. By making these credits non-refundable, as Jindal has proposed, their taxes technically don’t increase. They are still zero. But firms would no longer get that refund, saving the state millions of dollars.

Jindal’s move highlights the reality of these credits: They should be thought of as spending programs. Still, because a tax credit reduces the amount of revenue a state collects, a governor can raise money by making the credit less generous, without changing tax rates. Federal and state lawmakers are looking at this form of base broadening as a way address deficits without violating their no-new-taxes pledges.

But none are quite as bold as Jindal, a GOP presidential hopeful. One of his biggest targets is the inventory tax credit. Louisiana is one of 9 states where local governments can levy a property tax on inventory. All businesses are subject to the tax but firms with large inventories—such as manufacturers, energy producers, big box stores, and car dealerships-- pay the bulk of the tax.

The state currently provides a refundable credit equal to the tax paid to the local parish (county). It is a messy way to provide state aid to the parishes. Instead of sharing revenue, the state requires businesses to pay the parish and then apply for a state refund. Under Jindal’s plan, the refund would be capped at the business’ state tax liability.

Even though Louisiana publishes a comprehensive tax expenditure budget, tax credits have not gotten the same scrutiny as appropriations. But they are spending and do put a strain on the state’s ability to provide adequate services.

By framing the debate as an effort to eliminate corporate welfare, Jindal may be able to get some of the additional revenue he needs to begin to address Louisiana’s huge fiscal deficit, without touching tax rates. Plus, he’s highlighting the nature of tax credits as spending programs. And that may encourage Louisiana lawmakers to take a hard look at other tax subsidies, like the $250 million film tax credit.

Which would be good for Louisiana since it can use the revenue more than the ideology.