Louisiana’s legislative leaders have finally decided to tackle two of the toughest tax reform issues that have made the state one of the lowest-ranked business states in the country. They will need help from the state’s voters if they hope to succeed.
The issues are establishment of a centralized system for collecting state and local sales taxes and elimination of the ability of taxpayers to deduct their federal income taxes on state returns. Earlier efforts to do both have been unsuccessful.
Although Louisiana’s state-local tax burden is low at 9.2 percent, the state is ranked 42nd on Tax Foundation’s State Business Climate Index. It is among the 10 states that are most unfair to business.
Michael Olivier, president of Louisiana’s Committee of 100 for Economic Development, explained the state’s problem in a letter to The Advocate. He said for the state tax system to be improved, individual and corporate income tax rates should be lowered while eliminating the state deduction for federal taxes.
Michael Hecht, president of Greater New Orleans, in another letter to the newspaper, said, “Of all the tax proposals for this (upcoming) session, the one that will have the greatest impact, and also should be easiest to accomplish, is eliminating ‘federal deductibility.’”
Hecht added, “We look expensive, but we’re cheap. Does this matter? Since 1980, Texas (a perceived low-tax state) has enjoyed 105 percent population growth, while Louisiana has seen 10 percent.”
Stephen Waguespack, president and CEO of the Louisiana Association of Business and Industry, said if the federal deduction is eliminated, the state could reduce the individual income tax rate from 6 percent to possibly 4 percent. The corporate rate could be reduced from 8 percent to possibly 5 percent, he said.
Waguespack said a new businessminded legislature is ready to tackle issues that have been talked about for a long time.
OK, so what are the problems that might be expected?
Creation of the centralized sales tax collection system and ending the federal income tax deduction have to be constitutional amendments. Those amendments require a difficult twothirds vote in the Legislature and majority voter approval.
Selling both changes to legislators and voters is going to require an extremely effective public relations campaign. So, what are the positives?
Olivier said Louisiana is one of the few states where local governments collect sales taxes. He said that system places businesses at a disadvantage. One report said the state has 194 local jurisdictions that collect taxes. Each has its own audits, different rules, various rates and a lack of uniformity.
Speaker of the House Clay Schexnayder, R-Gonzales, will sponsor the centralized sales tax collection legislation. In a news releaseWednesday he said, “Moving forward, all the stakeholders involved have pledged to work together to find solutions to any issues that arise, with the collective hope of getting this bill through the legislative process and collectively supporting passage of this constitutional amendment on the ballot this fall.”
The stakeholders include the Louisiana Municipal Association, the Louisiana Police Jury Association, the Louisiana School Boards Association and the Louisiana Sheriffs Association.
The Jeff Davis Parish School Board has expressed concerns about centralized tax collections, and there may be many other local organizations that don’t like the idea. The skeptics will definitely be asking their legislators to oppose the change.
Waguespack said, “In our opinion, this is the holy grail of this session. If there’s one thing you could choose, this would be it. If you pass this, it doesn’t cost the state one dime. It doesn’t cost local government one dime. So, it’s really a no-cost issue to fix. This has to happen this year.”
Schexnayder said he envisions a nine-member board with four local government representatives, four state representatives and one unaffiliated member.
Olivier explained why eliminating the federal income tax deduction is a positive move. “The mark of good, fair tax design is low rates and relatively few deductions,” he said. “Louisiana has the opposite — high rates and large deductions.”
Hecht said, “With the current deduction, when taxes go up in D.C. (as many expect them to), collections decline in Louisiana. Currently, our state stands to lose hundreds of millions of dollars, impacting education, health care, and investment. By removing federal deductibility, we will regain control of our finances.”
It has been estimated that fewer than 20 percent of Louisiana taxpayers claim itemized deductions on their state income tax forms. Although they would lose the deduction, they are higher income taxpayers who would save because of lower personal income taxes.
The goal of legislative leaders is to make tax reform revenue neutral, which means total tax revenues won’t increase. And Hecht made a good argument for doing tax reform.
“Tax reform may seem boring, but the result can be exciting: more jobs, more growth, and more stable income for investing in the future of Louisiana.”
Jim Beam, the retired editor of the American Press, has covered people and politics for more than five decades. Contact him at 337-515-8871 or email@example.com.