Memo To Leges: Your “Revenue-Neutral” Tax Reform Idea Is All Wrong

Yesterday there was a bit of reporting about how efforts in the Louisiana legislature to move bills that would reform the state’s tax system to make it simpler and fairer are meeting resistance the leges didn’t expect.

A day after two major tax bills got out of committee with relative ease, day three of the Louisiana Legislature’s fiscal session demonstrated how complicated and politically difficult lawmakers’ promised tax overhaul may get.

Lawmakers have said they want to eliminate or reduce the cost of the state’s many tax breaks while lowering tax rates. They said they want to create a less complex system that is easier for taxpayers to navigate, doesn’t “pick winners and losers” and collects about the same amount of money as the current structure.

As Wednesday’s meeting of the House’s tax writing committee demonstrated, however, implementing a revenue neutral tax overhaul involves a lot of moving parts and uncertain predictions, and every tax break has supporters who will argue vehemently on its behalf.

House Bill 292 by Rep. Neil Riser, R-Columbia, would amend the state constitution by eliminating the state deduction for federal taxes paid by corporations. The change would generate up to $89.7 million in additional annual revenue for the state, according to a state revenue department estimate.

Getting rid of the corporate exemption also decouples state tax policy from the federal government’s. Under the current situation, a reduction at the federal level creates a windfall for the state, but a federal tax increase can cause a shortfall.

And here’s a perfect example of how much of a mess all of this is…

House Bill 454 by Rep. Phillip DeVillier, R-Erath, is a 35-page instrument that would slash the value of many exemptions, deductions and credits by half.

“I guess I’ll apologize to each one of you for all the calls and texts and emails you got about this bill [from opponents],” he said. “But I’m really not sorry about it.”

Lobbyists representing sectors including oil and gas, chemical manufacturing, banking, insurance and more lined up to defend their tax breaks. For example, Kevin Cunningham, representing property and casualty insurers, said his members pay premium taxes instead of income taxes, so the loss of their income tax credit would result in “double taxation.”

DeVillier pledged to work with stakeholders on their concerns. The authors voluntarily deferred House Bills 444 and 445, which keeps the measures alive for the rest of the session.

Look, there’s no point in beating around this bush: Louisiana’s tax system can’t be “fixed” like they’re trying to do. Every attempt to tweak it is going to generate opposition from an influential special interest which pumps money into legislators’ campaigns.

What can happen, and would happen if the Republicans in the legislature would stand together and find a way to induce a couple of Democrats or independents to stand with them, so an override of Gov. John Bel Edwards’ veto would be at hand, would be to throw out that tax system and much of the fiscal structure of Louisiana government along with it.

Mississippi is getting rid of its state income tax. Florida, Texas and Tennessee don’t have an income tax.

Stop trying to eliminate corporate income tax breaks and just eliminate the corporate income tax, period. It isn’t all that hard.

Louisiana has a $36 billion budget. You can cut $400 million from that and then just wipe out the corporate income tax. Doing so will induce people who own companies in Louisiana to grow them here and thus create jobs.

We would love to see some major employer in Louisiana come to the table at one of these committee hearings and straight-up threaten these guys that if they don’t eliminate the corporate income tax in the state, he or she is picking up and moving the company to Mississippi. And then say “Yeah, that’s going to hurt, too, because you guys like to look down on Mississippi. I want you to feel how deep your failure is by moving there rather than Texas or Florida like you’re accustomed to losing to.”

It might take something like that to shake some of these guys out of their small thinking.

They’re trying to push a “revenue-neutral” tax reform because Edwards said that’s what he’s for. Why they want to take direction from John Bel Edwards, who is an abject and utter failure whose veto they can override in the Senate with Republican votes only and can nearly do so just with House Republicans (they’ll need just two crossovers once Eddie Connick or Laurie Schlegel is sworn in to represent House District 82), is a mystery.

Somebody in that building needs to wake up and realize that John Bel Edwards is irrelevant once they get serious about major reform.

The big-ticket item in this session appears to be a bill to unify sales tax collections in the state. Every parish is a little different the way it’s done now, so if you’re doing business statewide or in multiple parishes you have to hire somebody to manage all the different sales taxes. It’s a colossal pain in the posterior and the state’s small businesses are particularly furious about it, for good reason.

This absolutely ought to be done, protestations from local sheriffs who want to protect their petty fiefdoms notwithstanding.

But when Mississippi is dumping the state income tax and Louisiana’s big achievement is to unify the collection of the highest sales tax in America, you can’t really call what you’re doing bold leadership.

Think bigger, gang.

The people who elected these legislators are looking for signs we haven’t wasted our votes. Last year’s multi-session debacle, in which the leges refused to fight for Louisiana’s civil liberties and small businesses amid COVID lockdowns which utterly failed to stop the spread of the virus, put them squarely behind the eight ball in terms of public confidence – at least with Republican voters, who are the ones who elected most of them.

It’s time to redeem the trust placed in them in 2019. Revenue-neutral tax reform bills won’t cut it.

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