Trickle Down Proven Wrong, Again — Louisiana $11 Billion In Incentives Fail To Deliver

There is a reason why George Herbert Walker Bush called trickle down “Voodoo Economics” – because it relies upon unseen magical forces, along with a lot of sacrifice, to work. Yet, despite the proven failure of the system, many out there still believe in it, including Governor Piyush “Bobby” Jindal of Louisiana. He pushed for a radical tax plan, one hailed by the Tax Foundation, who called it a “bold new plan” when proposed.

However, as reported by Lee Zurik of KSLA news, the real result of these policies has not been to create this magical growth of industry and employment, but has only fueled corporate executives and profits paid for by the taxpayer. The executive director of watchdog group Good Jobs First, Greg LeRoy, described the ties between these subsidies and executive compensation as looking to be closely related.

When a CEO gets a bump, a 900-percent pay bump, right after getting a billion-plus dollar subsidy award, that’s a totally natural question.

Good Jobs First found that after Governor Jindal signed such a benefit package for Cheniere Energy into law back in 2011, that Cheniere CEO Charif Souki had his income jump from $6 million to $57 million the next year, and $142 million the following. Having his income jump 2367% in two years does raise a lot of red flags for the critics of such sweetheart business incentive packages as well as for government watchdog groups. In total, Chenire Energy has garnered more than $1.6 billion in subsidies from the taxpayers of Louisiana, more than any other company. But it is hardly alone in this.

The total amount of taxpayer-funded subsidies signed for by Governor Jindal was found to be approximately $11.1 billion, more than any other state in the United States. This position however is not held by the state itself however. As Stephen Moret, who heads the Department of Economic Development, insists, these programs, part of the Industrial Tax Exemption Program (ITEP) are not subsidies or incentives at all, but just a tax bracket, albeit one which funnels billions in to chosen large corporations out of taxpayer pockets.

They’re not getting anything from the state. You’re looking at it as an incentive. What I’m telling you is the Industrial Tax Exemption Program in Louisiana is part of the basic tax structure of the state. It’s no different than saying this is where we set the tax brackets for families and what the tax rates are.

By ignoring the benefits put forth in the modified tax program, Mr Moret is doing an injustice to hard-working taxpayers. This argument also is undermined by the states own tax incentive website, which clearly call the ITEP a tax incentive.

The incentive is hurting local communities as well, as businesses no longer pay property taxes on land owned. As Tab Troxler, the assessor for St. Charles Parish, puts it:

When a new project comes in, or even existing projects that are there that, you know… you get the 10-year exemption in revenues lost. But the parish itself still has to provide law enforcement, fire protections, schools roads, drainage… all the little things that go along with operating a business.

And I don’t think, without exemptions, businesses are going to pick up and leave. I mean, taxes are just one portion of a business’s decision, obviously. Cost of goods, you know, raw materials and also, you know, fuel gas, natural gas, I mean. That’s a big component of these industrial facilities. They’ve got to look at transportation, they’ve got to look at where their clients are located, you know, where they’re shipping their materials, ease of shipping the materials, labor costs… there’s a lot that comes into play other than taxes.

According to his estimates, without this incentive, the parish could lower property taxes on homeowners by approximately 35%, which means every family which lives in the area, or business too small to qualify for the program, is subsidizing these large corporations executive bonuses as well as their shareholder profits. And for a homeowner or small business, having their tax bill reduced by over a third is a huge deal.

And it is not as if these taxes drew in any businesses either. As Mr. LeRoy points out, these businesses could not up and relocate regardless, as their business is built upon the natural resources of the area. How would they extract natural gas without the land under which the gas can be found? And transport of raw material can be highly expensive, and resource wasting, bringing with it the risk of spills, leaks or other disasters which can cost the company serious revenue.

You’re going to have an oil and gas industry in Louisiana, because you’ve got so many reserves. You’re going to have fracking. You’re going to have petrochemical processing and other chemical mills and things like that – as well you should, because that’s where the resources are. Do you have to shower them with money and property tax exemptions and other things that undermine your schools and your other public services? Probably not.

There are no added jobs from this program, as these companies needed to locate here regardless. There are no tax windfall increases from it as companies pipe their incentives to out-of-state shareholders and corporate executives. Louisiana has proven that trickle-down does not work, that voodoo economics does not work even in the land of Voudon. It is about time we served this idea to the Baron and forget that it ever existed.


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