Most people around the United States are probably ecstatic at the low, low price of gas right now. Looking at Gasbuddy.com, most of the country is under $2.61 a gallon and some areas in the Midwest are almost a dollar less than that. Here in Lafayette, I passed one gas station this morning that was at $1.79 per gallon. It’s actually costing me the low price of about $20 to fill up my truck right now which I haven’t been able to do since 2009 during the Great Recession.
The low prices are a boon to consumers, with estimates of up to $300 billion in savings predicted if prices stay the way that they are. These savings would boost consumer spending in other areas, further stimulating the economy which is already doing quite well. Sounds like a win-win situation for everyone, right? Not quite, at least not if you live in Louisiana or work in the oilfield industry.
Here in the southern part of Louisiana, thanks to decades of conservative policy makers, the economy is almost completely dependent on oil production and tax revenues are as well.
Louisiana is facing a projected $1.4 billion shortfall in the state budget next year. Cuts to higher education alone could total $384 million, a figure that is larger than all the public funding for the state’s community and technical colleges currently.
The problem will get worse if oil prices continue to drop. With Gov. Bobby Jindal on his way out, several legislators said they are looking to Louisiana’s four major gubernatorial candidates in 2015 to provide details about what they might do to fix the state’s budget woes. (Source)
The problem for Louisiana is that for all of these years (and not just under Bobby Jindal) it has done very little other than to pimp itself out to the oil industry. Exchanging low, low tax rates in return for bringing in industry (and possibly some bribes, this is Louisiana after all!), the state government has been content to let push much of the tax burden off onto the private citizens, collecting much of their revenues through the residents of the state – or collecting handouts from the federal government to balance their budget.
While this has worked for them in the past, a crash in oil prices will expose the vulnerability of the Louisiana economy and the fact that the conservative economic policies of Jindal and his predecessors are a failure.
Sales and personal income taxes are actually much bigger portions of the state general fund — the pot of money that pays for services like health and higher education — than oil and mineral revenue. In some ways, their stability is more important than the price of oil. If there is good news, it is that sales tax for the year — at least so far — looks like it might be a bit higher than originally expected.
“We are running a little ahead on sales,” said Greg Albrecht, chief economist for the Legislature’s fiscal office and one of two people who does the official state revenue estimates for Louisiana.
Still, for every dollar the average price of oil per barrel drops, Louisiana state government loses around $10 million to $12 million. A slight uptick in sales tax collections will not make up for the large drop in the oil prices that is currently underway. (Source)
If prices stay this low, Louisiana’s history of sticking it to the citizens of the state and not the corporations is about to blow up in their faces big time. If you read through the budget, something I did in this article, you’ll see that Louisiana collects more off casinos than they do corporate taxes. Republican lawmakers across the country are constantly harping on how we need to cut corporate taxes to stimulate the economy, which ends up shifting the burden to individuals instead and Louisiana is an example of this taken to an extreme. The ratio of revenue from taxes on private individuals versus corporate taxes is absolutely unfathomable to an outsider, but a lot of these taxes are collected off people who work in the oilfield which is suddenly in a layoff mode due to falling oil prices. Not only are oilfield workers being laid off, but these layoffs will create a ripple effect across the economy leading to job cuts in other sectors, including the state government where budget cuts are under way.
Louisiana lawmakers will beg for even more federal money to close their budget gap once again, all while Bobby Jindal criticizes President Obama as he gears up for pandering to voters in the 2016 Republican presidential primaries. Bobby Jindal will hit the campaign trail in Iowa and New Hampshire blaming President Obama for not doing enough for the economy, all while his own state faces the possibility of massive economic collapse and job losses. It’s one thing to discuss this pending economic carnage from behind a pundit’s desk in New York or San Francisco, but to watch this up close and in person is a truly eye-opening experience.
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