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Analysis | The Plot Against Louisiana

A primer.

We ran state government on the fumes generated by talking points for most of the past decade. It bankrupted us. Now it’s time we learn some simple economics and basic arithmetic.

Koch Money

Yesterday, the conservative “think tank” the Pelican Institute released what it called “a study” about the potential economic impacts of four of the main proposals currently being discussed as a part of the upcoming second extraordinary session.

It is the most absurd “economic study” you’ll likely ever encounter: a pathetically truncated four-paragraph-long talking points memo spread across four glossy pages and published by someone with the last version of Apple Numbers who apparently believed a color printer was an adequate substitute for legitimate analysis. It reads like Grover Norquist’s homework assignment from fifth grade, which was around the age he thought up the idea to one day demand all politicians sign his anti-tax purity pledge.

According to the Pelican Institute’s report, each and every plan to solve the state’s $648 million fiscal cliff will reduce Louisiana’s Gross Domestic Product and result in thousands of job losses. There is essentially nothing Louisiana can possibly do in order to ensure the state has the resources and funding required to operate state government, nothing. (I’ll unpack the reasons why this argument is absurd later in this article).

But first, in order to understand its context and appreciate its agenda, it’s important to know who, exactly, is behind the Pelican Institute.

The organization first emerged ten years ago.

“The Pelican Institute is a Louisiana-based think tank founded last year by native New Yorker and Tulane grad Kevin Kane,” I reported on CenLamar on August 1st, 2009. “Jeb Bruneau, son of former State Representative Peppi Bruneau, is its Vice President. (Peppi, as some may recall, was accused of timing his retirement announcement to maximally benefit Jeb’s campaign for the seat. Jeb lost anyway). Though it labels itself as ‘non-partisan,’ the Pelican Institute is undeniably bent toward conservative and libertarian political philosophies, with a concentration on limiting government.”

Following the tragic death of its well-respected founder Kevin Kane in 2016, at the age of 50, the Pelican Institute struggled for a couple of years to regain its footing and reassert its role in policymaking. Today, they are associated with the national conservative advocacy organization, State Policy Network, which promotes libertarian and anti-tax legislation across the country and is financed by large corporations and a small roster of notable conservative political donors. The Pelican Institute is also affiliated with the Buckeye Institute of Ohio, a right-wing organization largely funded by the Koch Brothers and their donor fund, which provided the resources for their most recent “economic study.”

In August of 2017, Daniel Erspamer, a Tulane graduate, became the Pelican Institute’s newest president. Erspamer’s previous job was with State Policy Network, where he had worked for slightly more than eight years as the organization’s Vice President for Strategic Partnerships. Prior to that, he spent a four-year stint with the Koch Brothers’ political advocacy organization, Americans for Prosperity. Erspamer’s first job out of college, in fact, was an assistantship with the Charles Koch Foundation.

During the past year, and most notably in the past four months, Koch-affiliated organizations have set up shop in Louisiana and have attempted and often succeeded to assert an outsized influence in policymaking and the media coverage of the legislative session.

Americans for Prosperity, for example, hired a state director, John Kay, who often uses his Twitter account to sharply and publicly excoriate anyone who deviates from his organization’s rigid anti-tax orthodoxy. (To Kay’s credit, though, he also latched onto state Sen. J.P. Morrell’s bill ending the practice of non-unanimous juries, which proved to be helpful).

This very small cabal of political operatives has worked throughout the past several months to help conservatives in the state House and Senate develop a coherent communications strategy, designed to justify a type of reckless disregard for the existential crisis currently faced as a result of the looming fiscal cliff. It’s often worked, even though it requires utilizing a national network of phony news publications to amplify and lend credibility to their message.

But really, this is just a small echo chamber of paid consultants.

The study published yesterday by the Pelican Institute exemplifies this strategy better than almost anything else.

A group of pelicans is called a “scoop,” and the waste from a scoop of pelicans is known, colloquially and obviously, as “poop.”

It is only fitting then to call the Pelican Institute’s most recent economic study a “scoop poop.”

The report categorically misrepresents both the problem the state of Louisiana currently faces and the solutions that have, thus far, been proposed to fix that problem. It demands that readers maintain a willful suspension of disbelief over a series of obvious facts about recent history. Here’s how it describes its findings:

As the state continues to shed jobs and population to neighboring states whose economies are growing, it’s important to take a deep look at the projected impact of new taxes. Today, the Pelican Institute, in partnership with the Buckeye Institute’s Economic Research Center, releases the results of a study projecting the economic impact of four difference revenue-raising proposals that have been discussed recently: increasing the state sales tax by a quarter-penny, increasing the state sales tax by a half-penny, compressing personal income tax brackets, and reducing individual income tax deductions.

All four scenarios would result in job loss and a decline in the state’s gross domestic product (GDP), key measures of economic health.

  • Raising the state sales tax by 0.25% would, within a year, lead to the net loss of 1,400 jobs and decrease the state’s GDP by $86 million, while raising $164 million in new tax revenue.
  • Increasing the state sales tax by 0.5% would, within a year, lead to the net loss of 2,800 jobs and decrease the state’s GDP by $173 million, while raising $329 million in new tax revenue.
  • Adjusting individual income tax brackets (reducing the top of the 4% tax bracket to $25,000) would, within a year, lead to the net loss of 2,600 jobs and decrease the state’s GDP by $191 million, while raising $190 million in new tax revenue.
  • Reducing the amount allowable for individual income tax deductions due to excess federal itemized deductions would, within a year, lead to the net loss of 700 jobs and reduce the state’s GDP by $56 million, while raising $56 million in new tax revenue.

But the Pelican Institute doesn’t show its math, disclose its assumptions, or provide any insight whatsoever about its methodology. There’s nothing about this that even remotely resembles economic scholarship.

Yet conservative operatives have shared the report as if it somehow proved something.

Even The Business Report of Baton Rouge reported on the study as legitimate news and not merely a distracting, manipulative, and fundamentally flawed analysis from a partisan interest group. It appears no one there had actually read the study, because if they had, they would have noticed several massive red flags, details that most journalists would find deeply problematic.

For one, the footnotes disclose a fact that should be considered automatically disqualifying: “Note,” it reads. “GDP (gross domestic product) and tax revenues in millions of 2009 (dollars).”

In other words, the Pelican Institute is constructing its entire analysis based on numbers nearly a decade old, and it’s using those numbers to create “a macroeconomic general equilibrium model calibrated to Louisiana’s economy.” At least that is what it asserts: Again, there’s no information about its actual methodology.

There’s another, perhaps more fundamental problem: The study claims that each proposal represents a tax increase, when, in fact, they will all actually decrease tax revenue from the previous year (and the state wouldn’t be “raising” or “increasing” sales taxes; it’d be reducing them from current rates), shrinking the size of government by nearly half a billion dollars.

Cliff Diving

For those of you who are confused or overwhelmed or perhaps not closely following the telenovela of the Louisiana legislature, the underlying issues are actually less complicated than many people would have you believe. The Louisiana Budget Project, a nonprofit, nonpartisan organization, put together this easy-to-understand video tutorial:

There are a few things necessary to clarify: While the total amount of the temporary revenue set to expire is slightly over $1 billion, the “fiscal cliff” is actually closer to $650 million; that’s the number it will require to ensure state government can continue to operate and meet its financial obligations.

That number, only a few months ago, was much closer to $1 billion, and some Republicans argue that their intransigence during the first special session (they didn’t solve anything, but were all happy to collect their per diem checks) somehow saved Louisiana citizens a $400 million tax increase.

That’s just fundamentally not true. First, the discussion is about replacing or renewing existing revenue, not increasing the overall tax burden.

Their politicization of the fiscal cliff didn’t have anything to do with sparing people from a tax hike, which is fairly easy to prove.

Second and most ironically, the only reason the fiscal cliff decreased by around $350 million in between February and today is because the Trump tax plan automatically triggered a provision in Louisiana state law that increased state income taxes in proportion to the reduction in federal rates.

In other words, Republicans who suggest that they spared a massive, new tax increase are hoping the general public isn’t savvy enough to realize that their Republican colleagues in Congress and the White House did increase Louisiana state income taxes, which allowed the state to recover a portion of the expiring, temporary revenue.

Jindalomics

Despite what the current governor’s political opponents may have you believe, we’re not in this predicament because John Bel Edwards is a “tax and spend liberal” who has massively grown the size of government. Louisiana is still dealing with the economic fallout from the previous administration, and that isn’t a convenient political blame game. It’s just the undeniable, factual reality.

Jindal left the state saddled with anywhere between a $1.3 billion to $1.8 billion structural deficit shortfall, the direct consequence of nearly a decade’s worth of financial mismanagement and the use of one-time monies in order to avoid confronting the need for additional sources of revenue. During the Jindal administration, Louisiana’s credit rating was downgraded (Moody’s was the first to point out our structural deficit), and toward the end of his tenure, this became an existential crisis.

Bobby Jindal was aided and abetted by the very same Republican members of the state legislature at the forefront of today’s debate, except, now, they assert any fault belongs to Democrats in the minority and to Gov. John Bel Edwards.

Among other things, they willfully confuse the public about Medicaid expansion, wrongfully asserting the program has cost the state money out of its general fund.

The math is clear: Louisiana nets around $300 million a year due to Medicaid expansion, a program that not a single Republican legislator has proposed to scrap and that all three of Gov. Edwards’ Republican opponents supported, and it hasn’t increased tax rates at all. The program is paid for through a 94% match from the federal government, and the state’s portion is covered through provider fees. (The notion that Louisiana could ever collect $500 million a year in beneficiary fraud, an absurd conspiracy theory cooked up in the waning hours of the regular session by Republican legislators who have failed to offer any meaningful plan to replace revenue, relies on a complete distortion of how Medicaid is funded. Even if there was massive beneficiary fraud- and there isn’t- that money wouldn’t go back to the state coffers, nor would it miraculously entitle Louisiana to even more federal funding).

We are faced with the current situation because the only acceptable additional revenue source for Republicans was through a sales tax increase, a regressive taxation disproportionately affecting the poor and working class.

As the video from the Louisiana Budget Project points out, our state income and corporate tax rates rank in the national average, but our combined state and local sales taxes are the very top in the nation. That’s a direct consequence of Republican leadership who refused to negotiate on anything except for increased sales taxes.

As he stated at the time, the governor made those taxes temporary because he recognized the regressive nature of sales tax; this had always been intended to be a stop-gap measure, with the hope and expectation that Republicans in the legislature would act in good faith to find another solution this year.

They haven’t. In fact, some of them are mendaciously peddling the talking point that Louisiana’s high sales tax rate was a priority for the Democratic governor.

Nursing a Lie

There’s one other issue that has become front and center in the state’s ongoing debate about how to best resolve the fiscal cliff.

From the very onset of this discussion, months ago, legislators had been warned that a failure to act would result in notices being sent out to people living in nursing homes and on a select number of programs that provide care for those with disabilities. Pursuant to federal guidelines, the state has a fiduciary duty to notify people within a certain period of time if there could be a change in their service care agreement under Medicaid.

With a deadline looming, the governor’s office was compelled to send out those notifications- 37,000 in total, including 17,000 to individuals in nursing homes.

Republican legislators immediately feigned outrage; they acted as if they were shocked by something they should have anticipated for months. And suddenly, for the first time in recent history, they became overnight advocates of government-subsidized health care.

The truth is: For far too long, many of these legislators have operated without any understanding or recognition of the real-life consequences of their decisions or their failures to make decisions. They attempted to spread the message that the governor was engaging in scare tactics, and they reassured constituents that everything would eventually work itself out. LSU still has a football team, after all.

When the Senate Finance Committee introduced and then adopted a budget resolution that restored funding for those 37,000 people, some state Republicans gleefully announced that they were right all along and used the opportunity to castigate the governor for ever sending out those scary eviction notices.

But there’s one major problem with all of this: The Senate’s version of the budget actually revealed the only way to spare 37,000 people in nursing homes or on a waiver program for the disabled would be to effectively shut down the entire government.

There’d be an across-the-board 24% cut in every department; district attorneys would be defunded, as would jails. TOPS would be gutted. There’d be massive layoffs, resulting in a huge spike in unemployment. We would have to completely end food subsidies for the poor. Our basic social safety network would be in tatters.

That was the point of the Senate Finance’s decision: To underscore what was at stake.

Some Republicans celebrated the pyrrhic victory of temporarily delaying the necessity of warning nursing home residents, because, pathetically, they thought they could use it as a talking point.

We ran state government on the fumes generated by talking points for most of the past decade. It bankrupted us.

Now maybe we should learn some simple economics and basic arithmetic.

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