Gov. John Bel Edwards’ effort to raise more money during the special legislative session got new life Wednesday when the Louisiana House tax committee narrowly approved a measure that would raise $113 million for the fiscal year that begins on July 1.
House Bill 38 would limit a tax break that goes to the 23 percent of taxpayers who itemize deductions on their federal income taxes. They are mostly people who earn at least $100,000 per year.
The Ways and Means Committee passed the bill, 10-9, only after adopting a complicated amendment that would restore the tax break after two years and then give taxpayers back the deduction that they lost during those two years.
All seven Democrats on the committee joined with three of the 12 Republicans to vote for it.
The full House will take up the measure on Thursday, and it will likely face a close vote since many Republicans oppose it. Republicans hold 61 seats in the 105-member House.
“It’s bad policy. It’s a temporary fix,” said state Rep. Lance Harris from Alexandria, who is the Republican caucus chairman.
The more conservative House has raised $222 million so far — less than half of the $600 million that Edwards says is needed to prevent deep cuts to the safety-net hospitals that serve the poor, the TOPS scholarship program, K-12 schools, the prison system and the public colleges and universities.
Ways and Means members said in interviews before the vote that they were getting pressure from the governor and his allies — including higher education officials — to support the measure while the state Republican Party and conservative groups ginned up opposition.
Meanwhile, the state Senate tax committee on Wednesday approved about $400 million in new taxes, including the $222 million already approved by the House.
Among the measures approved by the Senate Revenue and Fiscal Affairs Committee is one that would force manufacturing companies to choose between two lucrative tax breaks. That measure, Senate Bill 10, would raise $146 million of the $400 million by making companies — that qualify for both – to choose between claiming the industrial tax exemption or the inventory tax credit.
The $400 million worth of higher taxes approved by the Senate committee now go to the full Senate, as both the House and the Senate move toward the end of the 18-day special session on June 23. If SB10 passes the Senate, it will likely face a tough go in the House given the strong opposition from business lobbyists representing manufacturing companies.
Senate President John Alario, R-Westwego, said on Tuesday that he would be “awfully happy” if the Legislature ends up raising $450 million of the $600 million sought by Edwards, given the House’s aversion to approving taxes.
The House’s likely opposition to SB10 made it all the more important for Edwards and his allies that Ways and Means approve HB38, which would limit the federal itemized deductions that taxpayers can take on their state income tax returns. HB38 appears to be the last major tax measure that can pass the entire Legislature.
The House committee narrowly defeated a similar measure last week on a 10-9 vote with state Rep. Neil Abramson, D-New Orleans, and the committee chairman, casting the deciding vote.
That vote accentuated Abramson’s reputation as a lawmaker whom Democrats couldn’t rely on.
But it was Abramson who took the lead to rescue the measure, but he did so by proposing a convoluted amendment that left lawmakers (and journalists) voicing their bewilderment.
Under the amended bill, instead of taking 100 percent of the excess itemized deductions, taxpayers would get to take 57.5 percent — and could take 100 percent of two of those deductions, for mortgage interest payments and charitable contributions — but the loss of the deduction would last only two years. At that point, those taxpayers would get back 100 percent of the deduction and could recoup the money they paid to the state by losing the deduction for those two years.
Abramson and Greg Albrecht, the Legislature’s chief economist, repeatedly tried to explain the impact of the amendment to legislators who expressed their confusion.
“I may be confused, too,” Albrecht said at one point.
Rep. Julie Stokes, R-Kenner, and a certified public accountant, said HB38 would only cause confusion among those taxpayers who itemize and needlessly complicate the state tax system during the two years it’s on the books.
Stokes was the only member of Ways and Means who voted for last week’s version of the excess itemized limit to vote no Wednesday.
Abramson and state Rep. Jim Morris, R-Oil City, and the committee’s vice chair, were the two members who voted no on last week’s bill but yes on Wednesday’s.
In other legislative action, the House on a 46-51 vote rejected a proposal to delay a constitutional amendment scheduled for November that would eliminate a corporate income tax break in conjunction with establishing a flat corporate tax rate.
The vote on House Bill 5 was a contradiction because legislators have been saying they want to make changes in the tax code next year following recommendations to be issued in September by a special tax force studying the tax code. It was members of the tax force who sought a delay in the vote. Republicans supplied all the no votes on HB5.
The House also rejected a similar constitution measure that would have asked voters whether individuals lose an income tax break while gaining a flat income tax rate. The vote on House Bill 7 was 46-49.
VOTING for House Bill 38 (10): Chairman Abramson; Vice Chairman Morris; Reps. Chris Broadwater, R-Hammond; Stephen Dwight, R-Lake Charles; Joseph Bouie, D-New Orleans; Jimmy Harris, D-New Orleans; Major Thibaut, D-New Roads; Ted James, D-Baton Rouge; Marcus Hunter, D-Monroe; and Robert Johnson, D-Marksville.
VOTING against HB38 (9): Reps. Stokes; Jay Morris, R-Monroe; Paula Davis, R-Baton Rouge; Stephanie Hilferty, R-New Orleans; Mike Huval, R-Breaux Bridge; Dodie Horton, R-Haughton; Tom Willmott, R-Kenner; Phillip DeVillier, R-Eunice; and Barry Ivey, R-Central.
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