Editor’s Note: A guest post by Margaret Mire, who manages state affairs at Americans for Tax Reform, a non-profit taxpayer advocacy group founded at the request of President Reagan.
Louisiana’s business tax climate ranks 10th worst in the country, but this is apparently not bad enough for Gov. John Bel Edwards.
The Governor’s 2017 “tax reform” plan includes a new Commercial Activity Tax (CAT), more commonly known as a gross receipts tax. There is bipartisan agreement that gross receipts taxes are the most burdensome form of taxation, and it is easy to see why.
Gross receipts taxes are slapped onto ALL business transactions throughout the supply chain, including business inputs, such as raw materials, supplies, and equipment. By adding another layer of taxation at every stage of production, gross receipts taxes result in tax pyramiding, increase the cost of business operations, kill jobs, raise consumer prices, and chill overall economic growth.
The Governor’s proposed CAT, being carried by Representative Sam Jones as House Bill 628, is projected to transfer around $400 million per year – at the very least – from the private sector to the state. It’s worth noting this massive tax hike comes less than a year after Gov. Edwards signed the largest tax increase in Louisiana history into law in 2016.
Since taking office, the constant in Gov. Edwards’s administration has been its commitment to shaking every nickel and dime possible out of hardworking Louisiana taxpayers in order to pay for a bloated and dysfunctional state budget. Meanwhile, lawmakers in nearly every other southern state have been moving in the opposite direction fiscally by enacting rate-reducing tax reform, and making their states make attractive to businesses and investment.
Lets start with the most glaring juxtaposition: Louisiana and its neighbor to the west, Texas.
While Gov. Edwards is pushing to implement a gross receipts tax in Louisiana, Gov. Greg Abbott is pushing to eliminate the gross receipts tax in Texas. Legislation that has already been approved by the Texas senate would phase out the state’s gross receipts tax, known in the state as the “Margins Tax,” in less than 10 years using revenue triggers.
More impressive is that, unlike Louisiana, Texas does not impose a corporate or an individual income tax. Further, Texas’ push to phase out the Margins Tax comes just after Gov. Abbott signed a $3.8 billion tax cut for homeowners and businesses, and repealed $250 million worth of professional fees in 2015.
Now lets take a look at Louisiana’s neighbor to the north, Arkansas. Over the past few years, Gov. Asa Hutchinson has given significant tax cuts to middle and low-income households. Earlier this year, he signed a $50 million income tax cut for Arkansas residents earning less than $21,000 per year, and just two years ago, he signed the “Middle Class Tax Relief Act of 2015.”
Moving east, Mississippi and Tennessee have also enacted major rate-reducing tax reforms in recent years. In 2016, Mississippi eliminated the bottom 3 percent income tax bracket and began phasing out its franchise tax. Meanwhile, Tennessee passed a bill to phase out the state’s tax on dividend and interest income by 2022, making Tennessee a true no income tax state.
And then of course, there is Florida, which has cut taxes almost every year for the past two decades. Indeed, Florida boasts the second-lowest state taxes per capita in the nation, and now Gov. Rick Scott wants it to be even lower.
This year, Gov. Scott asked his legislature to slash taxes by $618 million. Though his legislature has not offered quite that much relief, the house budget proposal does include a $297.8 million wide-ranging tax cut package. While it is currently unclear what the final number will be, it is certain that Gov. Scott will sign another tax cut into law this year.
Clearly, tax cuts are trending in the South, and have been for a few years now. These pro-growth tax reforms have significantly increased the competitiveness of Louisiana’s neighbors, which already had superior and less burdensome tax codes.
Unless lawmakers want Louisiana to remain the loser of the South, they must start rejecting Gov. Edwards’s calls for new and higher taxes, and start embracing spending cuts and pro-growth tax reform that results in a net tax cut.