The at-large city council election to replace departing Councilman Arnie Fielkow is looming, so none of the candidates are too anxious to commit any embarrassing political gaffes. Councilwoman Stacy Head, for example, is smartly avoiding the issue of traffic cameras (although Head is generally a good egg, her support of these things is baffling).
Rep. Austin Badon, however, recently laid out a daring and potentially polarizing policy proposal: an earnings tax.
Earnings taxes have been implemented in roughly a quarter of major cities in the US, but mainly in the old manufacturing centers of the rust belt in the northeast and midwest. These taxes are imposed on income earned within the city limits so that workers who live outside the city and commute in from the suburbs are brought back into the tax base. The idea is that commuters are being made to “pay their fair share.”
It’s a lousy idea, and an outdated one. The crucial flaw is that employers can move and new businesses can open elsewhere. If I can choose between setting up an office in Orleans, with an earnings tax, or set up shop right across the parish line in no-tax Jefferson, I’m going to seriously consider Jefferson.
A 2006 study of earnings taxes by University of Missouri economist Joesph Haslag concluded that earnings taxes were negatively correlated with economic growth in cities versus suburbs. “The economics is quite straightforward,” wrote Haslag. “By adopting an earnings tax, a city gives businesses and residents an incentive to locate production outside the city. People go where they will obtain the highest after-tax return on their labor or investments.”
Policies like earnings taxes are fed by resentment over suburban flight, which is understandable. Suburbanization has depleted much of the city’s tax base. The response, however, should be to make the city a more desirable place to live and do business. An earnings tax, conversely, would be cutting off our collective nose to spite our collective face.
New Orleans has been bleeding people and money into Jefferson Parish for several decades. We don’t need to accelerate this further by adding another disadvantage when competing for business. We’ve finally begun making some headway in being more inviting to entrepreneurs and existing businesses, but it would be all-too easy to reverse that trend and go back to business as usual.
Badon should know better. He’s generally fairly moderate and level-headed, including with respect to tax policy. Alas, he’s dead wrong here. New Orleans should run screaming from failed Rust Belt tax policies that distract from our real problems.
Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.