Last Modified: Sunday, October 02, 2016 7:13 AM
Are Louisiana taxpayers prepared to give up their right to deduct federal income taxes they paid on their state returns? Will industry agree to give up more of its tax breaks?
Those are tough questions expected to be debated when the Legislature meets next April for its fiscal session. Early signs indicate it could become one of the most contentious sessions in many years.
One of those signs is the fact a task force studying ways to reform the state’s tax and budget systems asked for its second postponement for delivering its report to legislative leaders. The Advocate reported last week the Task Force on Structural Changes in Budget and Tax Policy wants a Nov. 1 reporting date, which it is expected to get. The Sept. 1 deadline was earlier postponed to Oct. 1.
Kimberly Robinson, state revenue secretary and a co-chairman of the task force, said a lot of votes have been taken, but more time is needed. The newspaper said there has been agreement on only a few budget and tax changes.
The sales tax is a perfect example of the fight ahead. Everyone agrees the earlier a temporary 1 percent increase approved at a special session this year goes off the books, the better. Louisiana’s 5 percent sales tax is the highest in the country, and it automatically reverts to 4 percent July 1, 2018.
The tax raises some $880 million annually, so how do you recoup those funds considered necessary to keep state government running? Many states tax services like barber and beauty services, cable television, home repairs, debt collections and a host of other personal services. It’s not a popular alternative.
States have turned to taxing services because Americans are changing their buying habits. Sales taxes are down because consumers are buying more and more goods online, and Congress is reluctant to start taxing Internet sales.
Taking away the deduction of federal income taxes allowed on individuals’ state returns requires a vote of the people, and that is considered an almost impossible task. Lawmakers tried to entice the elimination of that tax break during two special sessions.
Rep. Julie Stokes, R-Kenner, sponsored both bills. The measure in the first special session cleared the House 91-10, but was pending in the Senate Finance Committee as the session ended. It would have established a 4.5 percent flat income tax considered revenue-neutral in the first year. Currently, there are three different tax brackets.
Stokes brought the bill up again at the second special session and the House rejected it this time 46-49, which is 24 votes short of the two-thirds (70) needed. Legislators obviously decided by that time they had done enough tax reform, which could be a problem again next year.
Then, there are local property tax exemptions that benefit homeowners (the homestead exemption) and manufacturers (the industrial tax exemption). The homestead exemption is definitely a sacred cow, and pretty much off the table.
Former Gov. Buddy Roemer had plans to make changes in the homestead exemption as part of his tax reform plan in the late 1980s. He dropped the idea, but homeowners were still dubious. The proposal had a lot to do with Roemer’s inability to make the runoff in the 1991 gubernatorial election.
Local property tax exemptions for manufacturers are also up for discussion. They have successfully drawn businesses to Louisiana, but changes are being proposed in that area. The exemption effectively gives industries a 10-year local property tax break.
Stephen Moret, former secretary of the state Department of Economic Development, said only a few states attract the level of industrial investment that Louisiana enjoys. Sasol and other billion-dollar projects may not have located here if the exemption hadn’t been available.
Three state economists have recommended giving major companies an 80 percent tax break instead of the current 100 percent, but only for seven years. Economist Loren Scott said here last week the increase of business taxes during two special sessions and talk of changing the industrial property tax exemption is a threat to industrial expansion.
Gov. John Bel Edwards wants to give local governments a voice in their property tax exemptions and he wants to ensure that companies receiving the exemptions deliver on their job promises. He has been criticized for changing what has been pretty much an automatic process, but he said he only wants to hold manufacturers accountable.
Two taxes considered harmful to industrial growth are the corporate franchise tax and local inventory taxes. Only 16 states have the franchise tax and five are trying to repeal them.
The task force approved a resolution finding the franchise tax is bad for business and it should be rewritten, reduced or phased out. One member said reducing it doesn’t make it any more acceptable.
Business and industry get state tax credit payments for the local inventory taxes they pay, and some of those rebates have already been reduced from 100 to 75 percent. Corporations aren’t happy about the loss of $138 million this year and are certain to resist more reductions.
Repealing the local inventory taxes would solve the problem for corporations, but it would create major revenue shortages in parishes where the taxes are high.
Past experience has proved that individuals and corporate taxpayers vigorously defend their tax breaks. That is probably a major reason why members of the reform task force are having trouble deciding how much sorely needed tax and budget reform voters will accept.
Posted By: Bobby Sonnier On: 10/6/2016
Cut spending and waste. There is plenty to cut. In the not so distant future we will no longer be working for ourselves but for the state and federal politicians.Vote anyone who raises taxes out of office before it's too late!
Posted By: Samuel Mims On: 10/3/2016
No one and I mean no one should be be allowed to not pay any property taxes and then be allowed to vote on issues regarding the raising or lowering of property tax! If you are exempt, how do you get to vote whether or not I pay more while you still enjoy exempt status and pay nothing! Everybody should pay some measure of property tax! You can't exempt everybody and everything, then kill the few folk and agencies that are not exempt! Be fair and just to all!