A proposal to raise Louisiana’s sales tax by not 1 but by 1½ or 2 cents instead emerged Friday as the potential solution to ending a budget crisis that threatens to cancel college classes and cut health care to the poor and the disabled.
The plan has the strong support of House Speaker Taylor Barras, who discussed it with Gov. John Bel Edwards on Thursday.
The beauty of the plan for the Republicans and the business lobbyists pushing it, is this: It would solve the short-term budget problem and keep lawmakers from trying to find more revenue by raising taxes on business. The plan presents a problem for Democrats, however, because raising sales taxes hits the poor the hardest.
Democrats, however, could soon be facing a choice of having to hold their nose and vote for an increase of 1½ or 2 cents of sales taxes or rejecting the idea and then seeing devastating cuts to public hospitals that serve the poor and to the state’s colleges and universities.
Unlike the 1-cent sales tax increase already approved by the House and the Senate that would last as long as five years, the new proposal calls for a 1½- or 2-cent increase that would gradually decline and expire in two or three years.
Stephen Waguespack, the president of the Louisiana Association of Business and Industry, also discussed the plan with the governor Thursday. His group is fighting proposals that would raise revenue by increasing taxes on business.
Senate President John Alario, in an interview, called it “an option” and noted, “Our options are beginning to close out.” He added that he hasn’t yet discussed it with senators.
Kimberly Robinson, the Edwards administration’s point person on tax policy as secretary of revenue, did not rule out the proposal as she called it “a last resort.”
Pushed by business lobbyists and House Republican leaders, the plan seemed to be gaining steam on a day that Edwards admonished the House — especially Republicans — for not passing enough taxes to fill the budget gap, with time growing short during the special session, which ends on Wednesday night.
“You either lead, follow or get out of the way,” Edwards twice told reporters at a news conference. “We have some legislators who are choosing to do none of the three.”
Edwards also expressed his frustration that Barras, R-New Iberia, has not been able to deliver the votes he has promised in private conversations with the governor.
“It has always been the case in the past that if you have an agreement with the speaker, you know what that gets you,” Edwards said. “That has not proven to be the case thus far.”
Meeting with reporters just before noon, the governor specifically called on the House to levy an extra penny or so on a can of beer, a glass of wine or a shot of liquor.
Five hours later, the House took a vote but failed to approve the measure. The vote was 64-33, six short of the two-thirds needed to pass it.
State Rep. Kenny Cox, D-Natchitoches, the bill’s sponsor, was asked afterward whether eight Republicans didn’t vote for it — as others said privately — because they were upset with the governor’s critical comments.
“Probably so,” he replied.
The alcohol tax could return for another vote, but it would raise only $6 million this year.
The anti-tax mood in the House has stymied Edwards and the Senate, which is less conservative and is generally allied with the governor.
Edwards is frustrated because House Republicans have not been willing to support tax increases to close this year’s $900 million budget deficit and also have not been willing to propose enough spending cuts to make up the shortfall.
The governor called the 25-day special session specifically so the Legislature could find a combination of spending cuts, one-time fixes and tax increases to fully close the $900 million mid-year gap for the fiscal year that ends on June 30.
As of Friday, the shortfall stood at $147 million, Edwards told reporters. It had been $67 million after the House and Senate finished work on Thursday. But the Legislative Fiscal Office, which estimates the amount that each bill will raise, determined that a measure to have retailers advance their state tax payments to the state would actually not raise any money before June 30.
Because House Bill 54 was counted on to raise $75 million, the loss of that money pushed the $67 million shortfall to $142 million Friday morning.
Edwards disclosed that the gap was actually $147 million after an analysis of the cigarette tax passed by the House Thursday revealed that it would raise $11 million this year, not $16 million as originally believed, after a costly amendment was added to it.
The 1-cent increase in the state sales tax, House Bill 62 is a key part of the plan to end the budget shortfall. Both the House and the Senate have approved the measure, which by itself would fill $210 million of the $900 million deficit.
The plan that surfaced Friday would add an additional half-cent or 1 cent to HB62. As a result, state sales taxes would rise by 1½ or 2 cents, enough to close the $147 million gap. State Rep. Katrina Jackson, D-Monroe, the sponsor of HB62, said in an interview that she didn’t like the additional tax but didn’t rule it out.
Robinson said the proposal originated with LABI, the state’s most powerful business lobby.
The group is fighting proposals that would end refunds that businesses get when they pay inventory taxes to local governments. LABI is also fighting a proposal to remove the exemptions that allow businesses to avoid paying sales taxes on their energy costs.
Waguespack said the additional sales tax actually originated with the House Republican leadership. LABI does not oppose the measure, he said, because it would raise enough money to close the deficit, would be phased out “and would create a bridge to comprehensive fiscal reform in the next session.”
Waguespack said businesses would pay half of the sales tax increase, even after including exemptions carved out for purchases of manufacturing components, machinery and equipment demanded by the group.
Barras said Republican leaders have been discussing the sales tax proposal since the special session began.
“When we realized that some types of tax measures would struggle, we turned back to it,” he said in an interview.
Louisiana already has a regressive tax system, meaning the poor pay a higher percentage of their income in taxes than do the wealthy. Many large companies pay no or little taxes in Louisiana because of the proliferation of tax breaks, recent reports show. House Democrats — who hold 40 seats in the 105-member House — didn’t like the higher sales tax idea when they discussed it during a caucus meeting on Thursday at lunch.
“Right now, that would be a no-go for us,” said state Rep. Gene Reynolds, of Minden, the Democrats’ caucus leader.
But state Rep. Walt Leger III, D-New Orleans, said the Legislature could reduce the impact of a 1½- or 2-cent sales tax increase on the poor by approving a bill he is sponsoring. House Bill 5 would expand the Earned Income Tax Credit, which benefits the working poor. The measure is scheduled for debate when the House reconvenes on Sunday.
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