Following Through in Louisiana

Today's Times Picayune has this cautionary tale on the implementation of Louisiana tax reform.

A couple of years ago, lawmakers passed (and voters ratified) a tax swap that eliminated the state sales tax on groceries and utilities and hiked the personal income tax on upper-income Louisianans. This was a great move from a tax fairness perspective, and helped put some teeth into what had been one of the lowest and least-fair personal income taxes in the nation.

But it turns out that passing laws to achieve tax fairness is only half the battle. You've also got to make sure that retailers actually comply with the laws. The Times-Picayune article finds that some retailers have basically ignored the new grocery tax exemption and are continuing to charge tax on items that ought to be exempt.

This is a big deal because sales taxes on groceries hit low-income families harder than just about any other tax the state levies. Louisiana lawmakers thought (correctly) that they'd come up with a good approach to tax fairness when they passed this thing three years ago. But if up to a third of the retailers selling food aren't passing on these tax savings to consumers, as the article suggests, then low-income families are still feeling the squeeze from the food tax-- just in a more unpredictable and less uniform way.

The article focuses not on grocery stores but on convenience stores, and the primary research appears to have been done by a private citizen on his own rather than by the Department of Revenue. But the point is a good one: every tax (and every tax break) is only as good as its enforcement mechanisms allow it to be. Just as the lack of IRS auditing ability has hamstrung the feds' ability to prevent tax avoidance over the past five years, the inability of Louisiana tax administrators to enforce a new tax break has meant that many Louisiana consumers are paying more than they should.

This seems like a good opportunity for Louisiana policymakers to push for a stronger general enforcement capacity at the Department of Revenue. Let DOR make sure everyone gets the tax breaks they are entitled to-- and then let them ensure that no one gets tax breaks they're not entitled to.