Reform of Louisiana’s complicated tax code was a major goal of the current fiscal session, but it appears the plan has fallen short of what could have been accomplished. Legislative leaders will disagree with that conclusion, so let’s see where we are as the session comes to a close at 6 p.m. Thursday.
Legislation that is still alive with less than a week to go would lower state individual and corporate income tax rates if voters agree to end their ability to deduct federal income taxes paid on state income tax forms.
The goal is to make tax changes revenue neutral, which means the state won’t collect any additional revenue or lose any current revenue. It will be difficult to lower taxes if voters don’t give up those federal deductions that are worth about $850 million annually.
Rep. Stuart Bishop, R-Lafayette, is sponsor of a House bill and a proposed constitutional amendment dealing with the reduction of individual income taxes. Rep. Neil Riser, R-Columbia, has a bill and an amendment that eliminate federal corporate income tax deductions on state income tax forms. Riser also has legislation that establishes a flat corporate income tax.
Speaker of the House Clay Schexnayder, R-Gonzales, is sponsor of a constitutional amendment setting up a centralized system for collecting state and local sales taxes that passed both houses unanimously. Voters will decide the fate of the amendment on Oct. 9.
Schexnayder called passage a “big day for Louisiana.” However, if voters approve the amendment, the details of how the centralized collection system would work still have to be ironed out by a sales tax commission composed of four state and four local officials.
Sen. Bret Allain is sponsor of Senate Bill 159, which is a proposed constitutional amendment changing the maximum allowable individual income tax rate from 5 percent to 4.75 percent.
It comes as no surprise that Republicans, who have dominant control of the Legislature, want to lower income taxes. However, it’s pretty much hands off for them when it comes to the combined state and local sales taxes that are the second highest in the country.
The bills lowering individual income taxes are expected to pass, but they go one step too far. An amendment was added to one of them that says anytime the state collects more income tax revenue than expected, rates have to be lowered again.
Income taxes are growth taxes, and they increase when the economy is good. That makes it possible to fund costof-living increases that are a fact of life for individuals and state and local governments. It’s also a mistake to put a 4.75 individual income tax maximum in the state constitution.
Louisiana has been criticized for having too many tax exemptions, exclusions, credits, deductions, reductions and rebates. The $6.6 billion in annual tax exemptions are potential revenues that could solve a lot of the state’s problems, like its inability to build and maintain its roads, bridges, ports, airports and other infrastructure.
Rather than end many of those tax breaks, some legislators are trying to make a 0.45 percent state sales tax permanent that is supposed to end in 2025.
Once a corporation, business, group or individual gets a tax break, it’s difficult to take it back. Bishop had a bill doing away with some tax exemptions, but because of widespread opposition it never made it to first base.
Rep. Phillip DeVilllier, R-Eunice, had legislation reducing certain tax breaks by 50 percent. It would have raised $190 million in the first year and $850 million by 2025. The bill died in committee.
Legislators not only failed to reduce tax breaks, but they also continued to give more of them during the session.
If the bills reducing income taxes are eventually approved by the Legislature, which is expected, they are facing another hurdle. Voters would get an income tax rate reduction if they vote to give up federal income tax deductions, but they refused to do it on two previous occasions.
The vote was 62 percent against in 2000 and 56 percent against in 2016, If they do it again, tax reform will fail. Sponsors of this year’s legislation have said they will do a better job of explaining the benefits of giving up those deductions.
Unfortunately, successful reform of the state’s complex tax code is still questionable as the legislative session draws to a close.