Corporate tax cut may have adverse effect on smaller, local businesses

(By Nolan Mckendry/The Center Square) — The House Ways and Means Committee heard testimony on Gov. Jeff Landry’s proposal to reduce the corporate income tax rate and sunset a wide variety of tax credits and exemptions.

Louisiana has the highest corporate tax rate in the Southeast at 7.5%. Rep. Julie Emerson, R-Lafayette. who authored the bill, called the rate “extremely uncompetitive.”

House Bill 2 is a part of a sweeping package of reforms intended to make Louisiana more attractive to business and industry.

So, how does this help the state address the common threat of the fiscal cliff, which often results in cuts to education, health care and other public services?

According to Emerson and her colleagues at the Department of Revenue, as well as Landry, the appeal for reducing the corporate income tax rate is the amount of jobs that could be brought to the state, which means more wages to tax, more funding for public services, more robust and thriving industries, and a stronger economy.

The laundry list of credits and incentives for a wide range of industries–from the film industry to digital media—are expected to be eliminated.

So, it was unsurprising when lobbyists, investors and businessmen from an assortment of industries made their cases for keeping their tax breaks.

“This program is working,” Tom Leonard, chief executive officer of HRI, a real estate development company, said of the historic building tax credit.

“I’ll lose millions of dollars. And we’ll move,” said Gerard Ramos, founder of Revelry, a digital technology company whose business heavily relies on the Digital Media Tax Credit.

While the plan aims to reduce the corporate income tax rate from 7.5% to 3.5%, Ramos said the impact of losing the digital media credit outweighs any benefits of the lower tax rate. The credit has been crucial for Revelry in offsetting costs associated with training and retaining talent within the state.

Ramos said that 80% of his employees are in Louisiana, with an average salary of $120,000.

“If this program goes away, that’s a 25% hit on 80% of our spending in Louisiana,” Ramos continued.

The proposal to cut the corporate income tax rate from 7.5% to 3.5% is aimed at making the state more attractive to businesses, particularly C-corporations, which are taxed directly on profits.

Lower taxes mean more capital can be reinvested in growth, hiring, and expansion, giving these companies an incentive to set up or expand operations in the state.

However, the benefits are less pronounced for S corporations, like Revelry, which pass profits directly to owners who pay personal income tax instead.

Without tax credits like those for digital media, small and medium-sized S corporations could face higher overall costs, reducing their competitive edge–the opposite of what the bill intends.

“I understand these gentlemen are clearly benefiting from this credit we offer,” Emerson responded. “We as a body have to make a determination if these credits and incentives are worth more economic development than lowering rates.”

“We have to stop bleeding people,” Emerson said.

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