Reuters reported yesterday that Louisiana Governor Bobby Jindal has proposed a plan to simplify Louisiana’s tax code to make it more friendly to business. The Governor’s plan is to eliminate all corporate and personal income taxes in a way that would be revenue neutral.
The article reports:
But political analyst Maginnis (John Maginnis) questioned whether the Republican-majority Louisiana legislature would endorse Jindal’s ambitious plan.
“Any tax increase (such as sales tax) or elimination of exemptions would require a two-thirds vote, a form of legislative approval that would require (Republican) solidarity and significant Democratic support,” Maginnis said.
Jindal said his team will meet with lawmakers soon to discuss details of his tax reform plan.
“Eliminating personal income taxes will put more money back into the pockets of Louisiana families and will change a complex tax code into a more simple system that will make Louisiana more attractive to companies who want to invest here and create jobs,” he said.
There an important lesson in this idea. Raising taxes slows economic activity and does not necessarily result in an increase in tax revenue. Lowering taxes increases economic activity and often results in increased tax revenue.
During the 1980’s President Reagan lowered taxes. This resulted in an increase in revenue taken in by the government. Because the Democratic congress never kept their promise to cut spending, the federal deficit did not decrease, but federal revenue did increase.
Lower taxes mean more economic activity. Washington needs to learn that lesson.