No Income Tax Repeal-- For Now

So this is what passes for sane tax policy among Louisiana lawmakers: elected officials have agreed that before digging a $4 billion hole in the state budget by repealing the state's income tax, they need to think about it a little bit first.

The Shreveport Times' editorial board notes with approval that lawmakers have decided they need to take a longer look before they leap on this one. But that's not because the fine folks at the Times think income tax repeal is a dumb idea per se:

[T]he elimination of the state's income tax, if done quickly, could be a potent tool to reverse population outmigration in a state poised to lose a congressional district after the 2010 census.

No, they're just a bit worried about what income tax repeal might to do other taxes.

The Times' caution on the income-tax-repeal idea is warranted-- but they have the wrong reason for worrying. The real problem lawmakers need to think about is that we just don't know what the economic impact of income tax repeal would be. Taken on its own, repeal would put more money in Louisianans' pockets, which would obviously be good for the economy-- taken on its own. But if income tax repeal turns out to be unaffordable-- say, because the oil-price boom generating Louisiana's current budget surplus turns out not to be sustainable-- then this tax cut will have to be paid for with spending cuts. Whether that's done through reducing employment, abandoning transportation infrastructure upgrades or paring back health care spending, these spending cuts will-- taken on their own-- have exactly the opposite economic impact of the tax cuts. 

Which effect wins out? Does cutting taxes help the economy more than cutting spending hurts it? Hard to say- it depends what sort of spending cuts result. But the point to remember is that the Times doesn't want to recognize that this choice is a two-sided coin. You can't evaluate the impact of tax cuts without at least trying to evaluate the impact of spending cuts.