The Governor of Louisiana, Bobby Jindal, has called for the elimination of the state income tax and corporate tax, and an increase in the state’s sales tax to cover the reduced revenue. Finally, someone with sane economic policy! As I have argued in the past, any corporate taxes are in fact just more taxes on individuals (second section “Why Jobs Leave”), because corporations will not pay taxes–they will pass the cost on to the customers, or they will cut jobs and hours, or they will ship jobs over seas. Therefore reducing or eliminating the tax burden on corporations will preserve and increase available jobs, attract businesses to the state, and prevent businesses from leaving the state in search of lower taxes, and therefore reduced costs. Eliminating the corporate tax means more money will remain in the pockets of individuals to spend as they see fit.
Eliminating personal income taxes would also mean the prosperity of the state increases, causing the economy to grow. Demand is enabled by supply, meaning someone must first earn money, in order to spend it. Eliminating personal income tax means people are not discouraged from producing, but discouraged from consuming. This makes saving and investment more practical; saving and investment are what create capital to grow the economy and create jobs. If you have already paid taxes on income, then whatever you do with the money will not effect the amount you have to spend. But if you can avoid paying taxes by saving or investing, that is more likely to encourage those behaviors. It’s like the open bar effect, “well I’ve already paid taxes so I might as well spend the money and have fun”, versus, “well I don’t need to spend another 10 grand because then I’ll owe the government $1000”, or whatever the sales tax percentage is. Here’s what Governor Jindal had to say:
“Tax reform will remove administrative burdens from families and small businesses and improve Louisiana’s business prospects; create more business investment opportunities with increased job growth; and raise the state’s profile in national business rankings,” the statement continues.
“The bottom line is that for too long, Louisiana’s workers and small businesses have suffered from having a state tax structure that is too complex and that holds back economic prosperity. It’s time to change that so people can keep more of their own money and foster an environment where businesses want to invest and create good-paying jobs.”
The increased sales tax also encourages savings and investment, because taxes are paid based on the amount of consumption instead of being based on the amount of production. It also makes sure that “the rich pay their fair share”, because the more money someone spends, the more taxes they pay. By increasing the sales tax and decreasing the income tax, earning is encouraged, and spending is discouraged, leading to sounder fiscal policy.More investment and savings, and more skilled workers bring attracted to the state, to keep more of their hard earned money. Doctors, businessmen, teachers, laborers, and anyone who works will benefit, because they will keep more of what they produce. The less a person has confiscated from what he earns, the more he produces (because the incentive has increased), thereby growing the economy even more.
(A friend of mine who is a nurse was lamenting the fact that her paycheck barely differs between working 25 hours and 35 hours a week, because of the taxes taken out. If there was no income tax, she could work as many hours as she wanted, for the full reward of her time. Because of the tax system in Massachusetts however, she tends to work 25 hours, and forgo the extra ten hours of work, because the incentive, or reward, is not worth the time.)
Less debt is always a good thing, because credit is really taking future dollars to be earned, and spending them now. The economic set up which Gov. Jindal is advocating is more aligned with the truth that you cannot have demand, without supply. If no one worked, but we all got credit cards, there would be plenty of “demand”, but since no one works and produces, there would be no supply. Production must happen before consumption, which is why demand needs supply in order to function. So when the government says all we need is more spending, they are missing the crucial step of more production.
We should all hope for America’s sake that Governor Bobby Jindal is the next president of the United States. He has shown that he is interested in real economic improvement, and real solutions. He is not operating on passion, fear, or jealousy; Jindal is taking steps to increase the number and quality of jobs in his state, while attracting business, and discouraging excess spending. The simplification of the tax code would further free up resources, because it would remove more costs and burdens to doing business, and filing income taxes. If Jindal gets his proposal into law, I suspect I will be referring to the booming economy of Louisiana quite often, as an example of sane economic policy.