Tax reform is on table again

SEEKING AGREEMENT — Louisiana Gov. John Bel Edwards is trying once again to get an agreement with House Republicans about how to wipe a $1 billion budget deficit expected next July 1.

The opportunity is here once again for the Louisiana Legislature to adopt true and effective tax reform. Most of the suggestions Democratic Gov. John Bel Edwards made this week have been recommended by every tax reform study made over the last five years.

A $1.1 billion fiscal cliff will arrive July 1, 2018, when temporary tax measures legislators approved in 2016 go off the books. Edwards isn’t asking for new taxes, just revenues to replace those that are expiring.

The Public Affairs Research Council of Louisiana says Edwards has proposed “reasonable goals for a stable plan for the future” and adds his suggestions are a good starting point. The nonprofit research agency is also recommending passage of a constitutional amendment that would eliminate or reduce the federal tax deduction for state filers while lowering income tax rates.

PAR said studies have shown that by eliminating this deduction tax rates could be lowered by about 25 percent while still maintaining the same level of state revenue. Those studies include the PAR Tax Advisory Group in 2013, the Louisiana Tax Study commissioned by the Legislature in 2015, the Tax Foundation report for the Louisiana Committee of 100 and the legislatively created Task Force on Structural Changes in Budget and Tax Policy in 2016-17.

Only six of the 41 states that levy income taxes allow the federal deduction. Of those, only Louisiana, Alabama and Iowa allow the full deduction.

North Carolina in 2013 became a role model for tax reform when it replaced its progressive rate schedule for the personal income tax with a flat rate of 5.499 percent, which represented a tax-rate cut for everyone. It also increased the standard deduction for all tax filers and repealed the death tax.

Republican U.S. Sen. Thom Tillis of North Carolina, who was House speaker at the time, said, “We paid for this tax relief by expanding the tax base, closing loopholes, paring down spending, reducing the cost of entitlement programs and eliminating “refundable” earned-income tax credits for people who pay no taxes.”

The senator said Tax Foundation found his state has gone from having the least competitive tax code in the region to having one of the most competitive in the nation. Tillis said jobs have been created, the unemployment rate has been cut nearly in half, state revenue has increased each year since tax reform was enacted and budget surpluses of more than $400 million are the new norm.

North Carolina legislators also got tough with lobbyists trying to protect tax exemptions for their clients. Let’s hope Louisiana lawmakers have the political courage it takes to be that bold.

Edwards is suggesting the elimination of some sales tax exemptions expected to become effective again next July 1. He is also proposing sales taxes on previously protected activities like cable subscriptions, debt collection services, insurance adjusters and streaming services like Netflix.

None of those are popular taxes, but they have proved to be effective in helping other states stabilize their state budgets.

Louisiana’s Republican House members who have resisted tax reform have voted on and rejected great proposals sponsored by two members of their own party. Reps. Barry Ivey of Central and Julie Stokes of Kenner are well versed in the topics they offered.

Edwards hasn’t said much about budget cuts, but Speaker of the House Taylor Barras, R-New Iberia, said members of his party still want more cuts and structural spending changes. The governor said he is flexible and willing to work with legislators if they have other ideas.

Rep. Lance Harris, R-Alexandria and chairman of the House Republican Caucus, told The Advocate the GOP has been working on a plan and, “It will bear fruit in the end.”

The Medicaid health care budget that consumes one-fourth of the state’s spending has been the Republicans’ continuing target. Unfortunately, when health care funds are reduced the state loses some three federal dollars for each state dollar cut from Medicaid.

Edwards has made it clear that he and Democrats don’t want to extend the 1 percent increase in the state sales tax that made it the highest in the country. However, you can be sure that will become a proposal nevertheless. We can only hope it doesn’t happen, unless on an extremely temporary basis until other tax changes take place.

The governor wants to make some income tax changes, and that has already sparked opposition from small business interests. However, those changes could result in lower income tax rates, a fair exchange.

Other states have clearly demonstrated that tax reform is the only way out of continuing financial dilemmas. We hope Republicans in the Legislature are finally serious about taking a positive approach in fixing what everyone knows is a terrible tax structure.

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