The long wait may be over. Gov. Bobby Jindal’s anxiously awaited tax reform plans are supposed to be in the hands of legislators by March 15, according to the latest news reports. Lawmakers will then begin analyzing the details at hearings scheduled to start March 19.
Jindal’s goal is to abolish personal and corporate income taxes and replace them with higher sales and cigarette taxes, fewer tax exemptions and broadening of the services subject to the state’s sales tax. The idea of doing away with income taxes has been favorably received in most quarters, but those other tax proposals are causing some distress.
A good analysis of the state’s current tax structure came in mid-February from the Council for a Better Louisiana. The bottom line, according to CABL, is that “generally speaking, the tax burden in Louisiana is among the lowest in the country for both individuals and businesses.”
OK, so why mess with a good situation?
CABL said it’s because the state’s tax structure is too complicated. It talked about the way Tax Foundation, a nationally respected tax group, looks at Louisiana’s tax system.
Tax Foundation ranks Louisiana No. 47 when it comes to its overall tax burden, meaning the state has the fourth lowest overall tax burden in the country. However, the foundation also ranks Louisiana 32nd in its tax business climate, which means businesses don’t look too favorably on the state when it comes to locating here or expanding existing operations.
What we are talking about is the fact the state doesn’t look too good for business at first glance, but actually has low business taxes. Tax Foundation — in a third study — found that Louisiana has the 10th lowest tax burden for older companies and the second lowest tax burden for newer businesses.
The fly in the ointment is the system by which the governor and Legislature give tax incentives and exemptions. Louisiana may appear to have high business taxes, but those tax breaks bring them down to an acceptable level.
CABL said Tax Foundation likes to keep things simple, so it takes away points from states that offer tax credits, incentives and exemptions. Our taxes are relatively low, but we don’t get credit for it, the research group said.
The tax reform impetus needs to be concentrated on those tax breaks, CABL said. Louisiana has a tax burden lower than Texas, our chief competitor, but those multiple tax breaks make Texas look better to chief executive officers of companies looking for new locations.
Jindal wants to eliminate some of those tax exemptions, and that will help. Eliminating corporate franchise and income taxes that bring in $374 million annually will definitely improve the business climate. CABL said the top corporate income tax rate is 8 percent, not the highest in the country but towards the high end. It added that Louisiana has five corporate tax brackets.
“… The business tax climate index favors states with flatter taxes and lower rates so we score somewhat poorly in both,” the council said.
The big question is whether it is necessary to do away with personal income taxes when they aren’t the major obstacle to industrial development. And raising the state sales tax and taxing additional services to make up for lost income tax revenues can be a tough sell at a time when Louisiana is already experiencing serious budget shortfalls.
Speaker of the House Chuck Kleckley, R-Lake Charles, said higher sales taxes could put areas like Calcasieu Parish that are close to the border of other states at a competitive disadvantage.
State Sen. Dan “Blade” Morrish, R-Jennings, said at a Tuesday meeting he isn’t sure the state needs tax reform, but it may “need some tweaking.”
“If you look where we are with national watchdog groups, Louisiana seems to fall in a good position,” Morrish said. And that is pretty much what CABL was talking about in its Feb. 14 analysis.
Barry Erwin, president of CABL, echoed Morrish’s sentiments earlier this week. He said Louisiana’s tax system isn’t broken but could be better.
If the governor’s package is complete and gets to legislators early, they will have ample time to determine whether all of Jindal’s goals are worth pursuing.
Sen. Jack Donahue, R-Mandeville, chairman of the Senate Finance Committee, is encouraging his legislative colleagues to place their emphasis on tax exemptions. Like many others, he knows getting a two-thirds vote to raise the taxes Jindal wants to increase is a high hurdle to climb.
Eliminating the state’s personal income tax is certainly a worthwhile goal, but it should be phased out over a period of 5 or 10 years. Trying to replace $2.5 billion in lost personal income tax revenues with a wide variety of tax changes at one time is a risky undertaking.
Jim Beam, the retired editor of the Lake Charles American Press, has covered people and politics for more than five decades. Contact him at 337-494-4025 or [email protected].