Gov. John Bel Edwards appears likely to call the Legislature into a special session in June in an effort to limit income tax deductions and close corporate tax loopholes.
But it’s not clear that Republicans in the House are willing to approve the taxes that Edwards says are necessary to prevent slashing $500 million or $600 million from TOPS scholarships, classroom teaching at public colleges and universities, and aid to people with expensive debilitating illnesses.
In fact, many Republicans in the House don’t think the special session is necessary and would prefer to wait until September to reconvene in the hopes that more money will appear by then.
“Whatever money you have is what you have,” said state Rep. Jim Morris, R-Oil City.
Edwards, though, has said repeatedly that he plans to call legislators into a second special session this year because the revenue has to be raised by July 1, when the new budget takes effect.
The $39 million cut the Department of Public Safety and Corrections would have to absorb without new revenue would force the closing of two private prisons, and moving those inmates to other state prisons would put the number of inmates there at dangerous levels, Jimmy LeBlanc, the department secretary, told the Senate Finance Committee on Thursday.
The state’s community and technical colleges will have to plan for the fall semester based on what’s in the budget as of July 1, said Monty Sullivan, president of the Louisiana Community and Technical College System. “It can’t be on what we think may happen,” he said in an interview Friday.
Senate President John Alario, R-Westwego, said the special session might begin as soon as the regular session ends at 6 p.m. June 6 .
Or the special session might begin several days later in order to give the legislative staff time to finish its work for the regular session, Alario said.
The special session would last two or three weeks, in time to have the budget in place by July 1. Edwards has to call it at least seven days before it begins.
State Capitol insiders are discussing the potential ramifications if Republicans in the House reject the extra revenue Edwards is seeking. This would force state government to partially shut down or limp along for weeks or months without full funding.
Republicans hold a majority in both the House and the Senate, but the more moderate Senate is more amenable to following Edwards’ lead.
Veteran lobbyist Randy Haynie said the failure of the Legislature to approve revenue-raising measures during the special session would amount to “breaking the crystal.” In Haynie’s analogy, breaking the crystal would mean causing harm through budget cuts that could have been avoided.
Edwards appears to have two cards to play to entice enough Republicans to support higher taxes.
One is that the budget approved by the House shorted the Taylor Opportunity Program for Students by $72 million — and fully funding TOPS appears to be an absolute must for House Republicans because the program mainly benefits middle- and upper-income taxpayers who want to keep the program.
The other card is one all governors play: agreeing to provide money for a road, a sewer system, a ballfield and the like to a legislator in exchange for a vote to raise taxes.
What appears to be Edwards’ main vehicle to raise revenue during the special session would be to limit the deduction on state income taxes that individuals can claim from the itemized deductions they take on their federal tax returns that are in excess of the federal standard deduction — a move that would make middle- and upper-income taxpayers pay more.
The Legislature shifted the amount that taxpayers can deduct from 57.5 percent of those items to the full 100 percent. Four other states allow a 100 percent deduction. In a recent interview, Edwards said he would like to return to the 57.5 percent, a rate he said still would allow taxpayers to claim deductions for mortgage interest payments and charitable contributions. This would raise about $150 million per year.
A study by the Institute for Taxation and Economic Policy, a Washington, D.C.-based group, shows that taxpayers who earn more than $103,000 would shoulder 76 percent of the tax increase.
Rep. Walt Leger III, D-New Orleans, pushed a measure during the first special session this year to reduce the deduction to 50 percent. That bill lost 44-58. The measure needed at least 53 votes, a bare minimum in the 105-member House.
That is still a difficult target to reach, House Speaker Taylor Barras, R-New Iberia, said in an interview Thursday. “But that’s the one that would have the best percentage of passing,” he added, compared with other possible changes in the individual income tax code that would raise money.
In an interview, Leger said another possible change would be to shift the tax brackets so someone would begin paying a higher tax rate while earning a bit less.
This measure had so little support during the earlier special session that Leger didn’t even request a vote on it on the House floor. However, Leger said he believes that Republicans are now more open to the idea.
Louisiana residents pay low taxes compared with other states, which gives policymakers a reason to raise the burden.
A study released by a special task force meeting Friday showed that Louisiana taxpayers pay 7.6 percent of their income in all taxes, while taxpayers in neighboring states pay 8.8 percent.
Meanwhile, both Republicans and Democrats alike favor the idea of further limiting corporate tax breaks that proliferated during the Jindal years but have been trimmed during the past two years.
“Give each of them a little haircut and spread it around,” Alario said in an interview.
A study released last year by the Department of Revenue found that of the 87 largest companies that filed corporate tax returns in Louisiana in 2012, only one-quarter of them paid corporate income taxes in the state, even though 96 percent of those that make financial reports public said they were profitable.
Of the 87, only half paid corporate franchise taxes in Louisiana.
“Many companies received refunds from refundable tax credits that exceeded their income and franchise liability,” the report found.
“Taking a look at exclusions, credits and exemptions is fair,” said state Rep. Tanner Magee, R-Houma, an influential freshman.
It’s also not easy politically, as the Senate Revenue and Fiscal Affairs Committee has been reminded as it examines tax exemptions one by one, each defended by a lobbyist representing an interest group that doesn’t want to lose it.
The lobbyists argue that making companies pay more while the state is in an economic recession would discourage investment.
Corporate tax collections are running far behind what state officials expected in November, although business representatives blame that on the state’s recession.
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