The blue ribbon commission whose recommendations Gov. John Bel Edwards hopes to incorporate in the agenda for the upcoming second special session is looking at income taxes as a way to immediately fix the budget.
No decisions have been made — the members are still studying alternatives — but the need to find money soon, coupled with a tight deadline, limits their options, said Jim Richardson, the LSU economist who co-chairs the Task Force on Structural Changes in Budget and Tax Policy. Increasing income taxes is one of the most direct ways of achieving that goal.
“We tossed out these drafts to get the conversation started,” Richardson said. “At the end of the day, we’re going to have to make some recommendations and they’re going to have to be specific.”
The 13-member task force was created during the first special session, which ended March 9, and was asked to issue a report on Sept. 1. They have been meeting weekly, discussing policy ideas, but will now have to accelerate their work.
Edwards on Friday gave the study group a May 15 deadline to deliver preliminary recommendations for ways to raise money to fill financial gaps in the state budget that also are in line with its long-term goal of proposing ways to restructure the way state government raises and spends money.
Richardson said he didn’t think the commission could meet that deadline — about two weeks away — but they will work hard to come up with some reasonable recommendations as soon as possible.
Louisiana faces a $600 million shortfall. Edwards is hoping to get proposals for tax changes that would drum up new money, ahead of a planned June special session aimed at lessening cuts in the upcoming budget year, which begins July 1.
The budget proposal before the Legislature right now includes a $50 million reduction in spending for public K-12 schools, a 66 percent cut in the popular tuition-paying Taylor Opportunity Program for Students and deep cuts for charity hospitals.
Edwards said Thursday he hopes the task force will put rolling back some tax breaks high on their list. Tax breaks are expected to cost the state $7.7 billion next year, while the state is expected to collect slightly less, nearly $7.5 billion.
Revenue Secretary Kimberly Robinson said that’s a possibility and her office is looking for likely candidates.
But Richardson said exemptions could prove problematic because many already have been used and any money derived from eliminating or curtailing them likely wouldn’t become available until next spring when tax returns are filed again.
Richardson noted that lawmakers already have tapped the most likely sources for immediate revenues: increased taxes on tobacco, alcoholic beverages and such.
And the sales tax increases passed in the final minutes of the first special session have not only sown confusion, but have given the state uncompetitively high rates. Further increases, which would allow for immediate revenues, are not prudent.
“If you want money in a special session, you have to look at income taxes,” Richardson said. That could mean almost anything from changing brackets in order to draw more taxpayers into higher rates to decreasing itemized deductions, which would increase taxes owed.
In the end, the state needs to move towards lower income tax rates, but with fewer deductions and covering more taxpayers, Richardson said. That’s part of the long-term plan.
“Accordingly, the task force recommends that, if the state needs additional revenues after the completion of this regular session, the state make appropriate increases in the personal income taxes with changes in brackets and/or deductions,” stated one of four draft resolutions aimed at starting the conversation.
The talking points resolutions proposed Friday by Richardson along with fellow economists James Alm and Steven Sheffrin also include looking at exemptions and exclusions, creating a permanent trust fund for oil and gas revenues, and reconfiguring corporate taxes in a way that lowers the rates but ensures more entities pay.
Members recommended caution and the panel is going to look at various options — not only for how much money can be raised quickly but also from a perspective how the immediate effort will impact the long-term structure of the state’s financial system.
Melinda Deslatte, of The Associated Press, contributed to this report. Follow Mark Ballard on Twitter, @MarkBallardCNB. For more coverage of government and politics, follow our Politics Blog at http://blogs.theadvocate.com/politicsblog/.