Governor Bobby Jindal of Louisiana has just added his name to the ranks of governors who have proposed eliminating their state’s income tax. The first play of this interstate tax competition was made by Governor Mary Fallin of Oklahoma who proposed eliminating her state’s income tax last year. Fallin, unfortunately, was not able to make that happen last year but has vowed to try again. This year, Jindal hopes to beat Oklahoma to the punch. Based on the successful legislative record Jindal has had to date, he just might be able to.
It’s a reform that would be vitally important to Louisiana. That state has a tax climate that ranks poorly relative to both the states in the southeast region and the nation. And it’s competing – and losing – to other states like Florida and Texas that have no income tax. Jindal’s proposal has already spurred glowing headlines and sparked further admiration by conservatives nationally and in the Bayou State.
This type of interstate tax competition is something that Arizona ignores at its peril.
Governor Jindal will be releasing more details of his plan soon, but he’s promised to make the income tax elimination revenue neutral. That will require either raising the sales tax rate to 7 percent from 4 percent, broadening the sales tax base by getting rid of a number of sales tax exemptions, or a combination of both. The Tax Foundation has already reported that elimination of the income tax in Louisiana would propel it to one of the best tax climates in the nation, right alongside the likes of Texas and Florida.
Here in Arizona, Governor Jan Brewer and her administration are to be commended for making sales tax simplification one of the top agenda items for this legislative session. Simplification is a necessary first step for overall tax reform. But it’s only a first step.
If Arizona is going to compete with states like Texas or Louisiana – both of which have geographic advantages that Arizona simply does not have – we are going to have to be better than they are at the tax competition game. The best way for Governor Brewer to leverage her sales tax simplification efforts is to couple it with fundamental tax reform that outdoes what Governor Jindal is trying to do. It the only way we can stay in this game. And it’s a game we need to win.
Goldwater Institute: A New Tax Plan for a New Economy: How Eliminating the Income Tax Can Create Jobs
Tax Foundation: Governor Jindal's Bold New Tax Plan