Jim Beam column:Ending income taxes is tough
Published 7:08 am Saturday, February 3, 2024
Few people were surprised to hear that Republican Gov. Jeff Landry’s economic development and fiscal policy transition team wants to eliminate and reduce a number of taxes. The team wants to eliminate corporate and personal income taxes and inventory taxes and reduce the severance tax on oil and gas.
Former Republican Gov. Bobby Jindal (2008-2016) wanted to do some of those same things when he took office but he helped kill one of the best tax reform measures ever passed in Louisiana. The reform effort had the full support of the late-Gov. Mike Foster, R-Franklin, who was in office at the time.
The plan sponsored by the late-state Rep. Vic Stelly of Moss Bluff eliminated the state sales tax people had been paying for years on food purchased for home consumption, public utilities, and prescription drugs. The plan raised state income taxes to replace the sales tax revenues lost by the state.
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Stelly made elimination of those sales taxes a constitutional amendment that was approved by voters. The higher sales taxes were approved by the Legislature in the event they had to be changed, which was probably a mistake.
Republican legislators complained about the higher personal income taxes and made plans to lower them when they and Jindal took office in 2008. However, Jindal liked the Stelly plan at first and said he would veto the bill if lawmakers passed it.
Whether Jindal was thinking about running for president at the time only he knows, but he did eventually seek the office. Jindal changed his mind and let legislators reduce the higher income taxes.
The state lost $1.15 billion in sales tax revenues over the first five years the Stelly plan was in effect. However, the higher income taxes were designed to make up the difference.
When the Legislature lowered the income taxes in 2008, the state’s revenue losses kept getting higher and higher. Jindal and the Legislature tried to make up the difference by cutting higher education and health care that aren’t protected in the budget.
Those cuts did tremendous damage. When Democratic Gov. John Bel Edwards took office in 2016, he inherited a $2 billion budget deficit. Thanks to Edwards and the Republican-controlled Legislature, Edwards left office eight years later with the state finances in great shape for incoming Gov. Landry.
The Advocate said the transition committee offered no plan on how to offset the $4.5 billion the state receives from individual income taxes annually and the $1 billion it receives from corporate income taxes.
The current Republican Legislature is expected to let a 0.45% state sales tax increase that was approved in 2018 go off the books in 2025. However, it never touches the state’s 4% sales tax that hits the lowest income earners in the state the hardest.
The Legislature at its 2021 regular session started elimination of the state’s personal income tax and hopes to reduce it annually every time there are excess revenues. The new law requires the reduction in each individual income tax rate every year until 2034 whenever additional revenues justify an increase.
It will be interesting to see whether Landry or someone in the Legislature can come up with a better way to reduce those income taxes the transition team is talking about. Former state-Rep. Richard Nelson, R-Mandeville, and a candidate for governor, had a reasonable plan for getting rid of the income tax last year but it proved to be a tough sell.
Property taxes are extremely low in Louisiana because of the state’s $75,000 property tax exemption. And Nelson, like many others before him, wanted to lower that exemption that is sacred in the minds of the state’s homeowners.
The only workable way that lawmakers might come close to ending income taxes would be to drastically reduce the tax exemptions legislators have been granting for many years.
The state’s fiscal year 2021-22 Analysis of Tax Collections vs Exemptions, the latest report available, shows the state collected $11.7 billion in taxes that year but had exemptions totaling $7.4 billion.
Like others before him, former state Rep. Stuart Bishop, R-Lafayette, and chairman of the House committee dealing with taxes, sponsored House Bill 641 last year that would have terminated a number of tax exemptions. The bill got out of Bishop’s committee, but he didn’t want to put his House colleagues on the spot by bringing it up for a full House vote.
Doing away with income taxes is a laudable goal, but it has continually been extremely difficult to accomplish.