The buzz in the media and governmental circles focuses on the yet undefined composition of Governor Jindal’s tax reform proposal for the legislative session that begins April 8. The plan is still in the conceptual stage. The governor and his key operatives indicate that it will focus on removing the personal and corporate income taxes along with the corporate franchise tax. To offset the $3 billion loss of revenue (and here is where the proposal remains murky) they propose an increase in the sales tax and removal of some as yet unidentified exemptions, deductions, credits and exclusions.
The Jindal administration indicates that they are using Texas as a model for their approach. Texas has no personal income tax. It does, however, have much higher property taxes than Louisiana which allow local governments in the Lone Star state to fund their expenditures without relying on state assistance to the degree local governments in Louisiana currently do. Texas’ sales taxes—state and local combined—are also lower than those currently collected in Louisiana. Texas has no corporate income tax or corporate franchise tax, but it does collect other business taxes not collected in Louisiana.
What elements the governor eventually places in his tax reform package will obviously be of great interest to individuals, businesses and local governments. In some discussions, Jindal administration representatives indicated that the state sales tax rate would increase by 1.6 cents above the current four-cent level. That wouldn’t come close to raising $3 billion dollars. One of the items hinted as being a vehicle to make up a significant amount of the remaining revenue hole is collecting the sales taxes on services not currently being taxed. That can be done by targeting a large raft of services that garner relatively small amounts of revenue each or a few that would raise significant sums of money. Politically, it would be more expedient to do the latter. Another likely goal of the administration’s tax reform effort would be to end some of the state obligations to local government funding by allowing the local governments to also tax any services included in the proposal.
Beyond the question of what is going to be taxed and what taxes are going to be removed, another important question is what structure will the legislative proposal take? Will it be one bill encompassing all elements or many bills in a loosely-related package? That will be an important consideration. The legislation to increase taxes will take a two-thirds vote and will be the hardest part of the package to achieve. Will the governor put as much emphasis on securing the votes to raise taxes as he does on the tax repeal portions of the package? Without a strong push from the governor for all of the elements of the proposal it will be very difficult to get 70 votes in the House and 26 in the Senate.
Finally, the governor has said that economic development is the major thrust behind this effort. Almost $70 billion in new plant locations in Louisiana have been announced and are on the books. Two of the most frequently rumored services that are likely to be candidates for sales tax levies are construction and oilfield services. Have the companies which have announced the plant locations (largely due to the availability of low natural gas prices) figured a 10 cent or higher combined state and local sales tax into their investment plans for Louisiana? If such a levy comes to pass it could have significant economic development consequences on its own.
Much is yet to be learned about Governor Jindal’s tax reform plan. Many questions need to be answered and, no doubt, many more questions will arise going forward. How those questions are resolved will have a great impact on how the vote count will shape up come April.