A team of economists that has been studying the state’s taxing structure said Tuesday Louisiana legislators could raise $800 million immediately by raising the tax on cigarettes, partially rolling back inventory taxes, and stopping the practice of allowing taxpayers to write off their federal deductions on state returns.
But the authors of the Louisiana Tax Study were charged by the Legislature to come up with long-term structural solutions — not short-term fixes for the fiscal year that begins July 1. They gave a preview to their coming report to a joint meeting of the Louisiana House Ways & Means and state Senate Revenue & Fiscal Affairs committees.
“We have an outdated, broken tax structure,” House Speaker Chuck Kleckley, R-Lake Charles, said.
Tax credits, exemptions and other breaks for business have mushroomed over the past decade. A handful of the giveaway programs examined by The Advocate in a recent series found that their cost had shot up from just over $200 million to $1.1 billion during the past decade.
In their analysis, the Louisiana Tax Study economists said their final report would recommend more than a couple dozen changes to make the state’s tax base broader, its rates lower and its burden more fair, while providing money enough for state government to pay for services. LSU economist Jim Richardson said how the system is ultimately structured is up to lawmakers, but depending on the choices made, up to 90 percent of Louisiana’s taxpayers eventually could see a modest decrease.
To strengthen the state’s long-term fiscal situation, the panel would cap the credit for the motion picture industry. Tulane University economist Steven Sheffrin said the film industry produces few jobs and minimal investment. But if the state wants to have the exposure and if local governments, who benefit the most from movies being made in their city, find value in the program, then the total amount of dollars available should be limited, he said.
Credit for installing solar panels that make electricity at individual locations also would be eliminated. Both the solar and the film programs should be treated as expenditures aimed at helping to build the industry, if legislators go along with the recommendations.
The panel also suggested abolishing the “horizontal drilling credit,” which was passed in 1994 when few oil and gas companies were using the method. These days, “fracking” is used a lot, so a monetary incentive makes little sense when prices and costs now drive investment decisions, their report said.
Also, whatever funds come from the Tuscaloosa Marine Shale play, which stretches from the central Louisiana across the Florida parishes and holds an estimated 9 billion barrels of oil, should go to a “permanent trust fund” and spent on long-run projects rather than funding annual operating expenses.
In addition to Sheffrin and Richardson, a member of the Revenue Estimating Conference that establishes how much money state government has to spend, Greg Upton, of the LSU Center for Energy Studies, and James R. Alm, chairman of the Tulane University Department of Economics, contributed to the study.
Lawmakers are facing a $1.6 billion gap between the revenues available and the cost of current government services, and legislators couldn’t help but ask for ideas that would more immediately address that shortfall. Gov. Bobby Jindal released his own budget plan at the end of February that filled the shortfall and balanced the budget without tax increases. But many of his ideas require changes in the law. Few legislators have praised the proposal.
So, what could the economists suggest that would keep the legislators from having to make deep cuts in higher education and health care during the next few months?
Richardson and his fellow economists pleaded with the legislators not to do anything this year that would cause problems later.
“Tax reform is a multiyear process,” Richardson said. “Don’t do long-term harm trying to fix this year’s problem.”
But, anticipating the question, the economists offered a few ideas to raise about $800 million in revenues without damaging efforts to do a more thorough revamp in the future.
Louisiana’s cigarette tax is about 36 cents. The economists recommended matching the $1.41 rate charged in Texas or at least the 68 cents Mississippi collects. The average tax nationally is about $1.08 per pack.
Louisiana could bring in at least $120 million at the Mississippi rate, and up to $280 million if taxes were set at the average rate, Richardson said.
State Rep. Harold Ritchie, D-Bogalusa, a smoker who has repeatedly attempted to increase Louisiana’s cigarette tax, said after the hearing that he is optimistic about his chances to raise the tax this time around, particularly with the endorsement of the three economists.
Another $350 million could be raised immediately by repealing the ability — it was added in 2007 — of taxpayers to subtract on their state returns the excess itemized deductions claimed on federal returns.
Additionally, the panel recommended rolling back by 25 percent the state’s inventory tax credit . Businesses have to pay taxes on the inventory they hold — every can of beans on the shelf, as one grocer described it — to local governments. But the businesses are then refunded the same amount by the state.
Richardson said he favors eventually doing away with the tax, which few other states have, but sympathizes with local governments that now rely on the money to pay cops and teachers. The panel recommended slowly rolling back the inventory taxes while at the same time finding new sources of revenue for local government.
“This 75 percent would be a good first step in that direction,” Richardson said.
He predicted that Americans for Tax Reform, an influential anti-tax group, would find some of the group’s suggestions a “tax increase,” a once-fatal label for conservatives. The group, run by Grover Norquist, has been consulted by the Jindal administration on budget matters.
“The governor has taken the pledge not to raise taxes, and he has taken it very seriously,” Richardson told a legislative hearing. “I would suggest that on a pledge like that, there are other things that you take seriously, too.”
Lafayette Republican state Rep. Joel Robideaux, who chairs the powerful Ways & Means committee, said Jindal’s position, not Norquist’s, is going to have more impact on whether any of the panel’s suggestions are adopted.
“Whether or not the body is going to be willing to buck the governor, that’s the million-dollar question,” Robideaux said after the hearing. “We don’t know the answer yet.”
Follow Mark Ballard on Twitter @MarkBallardCNB. For more coverage of government and politics, follow our Politics Blog at http://blogs.theadvocate.com/politicsblog/.