A profusion of tax breaks and giveaways in Louisiana’s tax code means tax rates are too high. That’s a major reason why a task force appointed by the Legislature last year declared the system “broken and inefficient.”
Lawmakers, the task force said in January, should dump many of the tax exemptions that litter the tax code while lowering the overall rates.
“A failure to act is not an option,” the 13-member task force concluded.
Gov. John Bel Edwards embraced the recommendations. But the Legislature has mostly looked the other way.
In fact, lawmakers are in the process of approving at least two dozen tax exemptions pushed by lobbyists that would benefit specific industries or even individual companies. In most instances, members of the House Ways and Means Committee, Republicans and Democrats alike, have faced no questions from their peers while pushing through the new breaks.
It’s exactly the opposite of the vision laid out by the Task Force on Structural Changes in Budget and Tax Policy — which consisted of economists, good-government officials, a mayor, a union leader, tax lobbyists and others.
The group’s report said the cost of tax exemptions had nearly tripled over the past decade and a half, going from 39.2 percent of tax collections for sales, income, corporate franchise and severance taxes combined in 2000 to 106.1 percent in 2015.
In other words, the state collected less in taxes in 2015 than it exempted.
“The tax structure should be fair, simple, competitive with other states, and stable over the short and long term,” the final report said. “These qualities are best achieved with taxes that are broad-based with low rates, and that do not play favorites for or against a particular constituency.”
The task force also favored allowing a temporary 1-cent increase in the sales tax to expire as scheduled in mid-2018. The sales tax increase, sought by Edwards and legislators last year as a one-time means to plug a gaping budget hole, has given Louisiana the highest average sales tax rate in the country, at 10 percent.
But many lawmakers, mostly Republicans and including House Speaker Taylor Barras, of New Iberia, have voiced support for extending at least a portion of that tax when the Legislature reconvenes in a special session sometime in the coming months.
Speaker Taylor Barras conceded that the Louisiana House will not raise enough revenue before…
Lawmakers have also resisted another task force recommendation, that they establish a “sunset” on tax credits that would cause the credits to expire unless their supporters persuaded the Legislature to extend them.
The task force also favored extending the sales tax to a number of transactions subject to the tax in Texas that are not taxed in Louisiana. House Bill 655 would have raised $202 million per year but faced so much opposition that state Rep. Gene Reynolds, D-Minden, withdrew it.
Sen. JP Morrell, D-New Orleans, has had a front-row seat on the effort to implement the task force recommendations as the chairman of the Revenue & Fiscal Affairs Committee, which hears tax bills.
“This tax reform session has been a complete, abject failure,” Morrell said in an interview. “The only reform is low-hanging fruit.”
The House has approved House Bills 353 and 501 that would, if approved by the Senate, ask voters in October to decide whether to amend the state constitution to replace Louisiana’s graduated individual income tax rates with a single 3.95 percent rate, in exchange for losing the ability to deduct their federal income tax payments on their state tax returns. If approved, the changes, sought by Rep. Julie Stokes, R-Kenner, would raise $4 million per year.
The House also gave initial approval to a similar measure that would allow voters to eliminate the federal income tax deduction for corporations in exchange for a flat corporate income tax rate.
House Bill 356 by Rep. Barry Ivey, R-Central, would call for the proposed constitutional amendment to be voted on Oct. 14, the same date as Stokes’ proposal. Ivey still needs the House and the Senate to pass House Bill 360 to establish the exact corporate income tax rate.
On Tuesday, the House is scheduled to consider Stokes’ bill to align sales tax exemptions offered by state and local governments – another task force recommendation. Her bill, House Bill 673, seeks to end the current practice in which parishes tax numerous transactions that the state exempts.
The legislative fiscal staff could not determine whether Stokes’ bill would raise or lower state or local tax revenue. State Rep. Cameron Henry, R-Metairie, who chairs the budget-writing Appropriations Committee, raised that as a possible red flag during an initial debate on the bill Thursday.
The onus of implementing the task force’s recommendations has fallen on the House Ways and Means Committee, since most tax legislation originates there.
Morrell spent 2016 holding numerous hearings on tax exemptions to determine which ones ought to go and has sought this year to sunset all tax credits at some point in the future. (He also sought several new tax exemptions.)
State Sen. JP Morrell was hopping mad.
The Ways and Means chairman, Rep. Neil Abramson, D-New Orleans, has shown less enthusiasm for the task force’s recommendations.
Abramson, the only Democrat who is part of the House Republican leadership team, did not respond to two phone calls Friday but did send a statement in response to an email.
Ways and Means, Abramson wrote, approved “over 30 bills addressing all areas contained in the (task force) report, including individual income taxes, corporate income taxes, sales taxes, ad valorem taxes and economic incentive programs.” Among them have been bills that “contained over approximately $350 million in new state revenue based on original fiscal notes.”
He added that his committee redirected to the Appropriations Committee any tax exemption bills that might cost the state money in the upcoming fiscal year.
Ways and Means has not approved any of the bills backed by Edwards that were modeled on the task force’s recommendations.
“I’m disappointed because that was the commitment they made: We’ll do temporary (taxes) last year, and we’ll do permanent stuff this year,” Edwards said in an interview Thursday. “They’ve just walked away from it.”
But they haven’t walked away from many lobbyists seeking special favors for their clients.
On May 15, Ways and Means approved 15 different tax exemptions that would cost the state an undetermined amount, but one that could easily reach millions of dollars per year. Those who won tax exemptions included coin dealers, companies that invest in research and development, utilities, sellers of poly pipe, owners of inactive oil wells, investors in rural areas and sellers of anti-pollution equipment to timber companies.
In each case, the legislative sponsor, often accompanied by a lobbyist, told the committee that the tax exemption was needed to allow a business to remain competitive or to entice it to invest more money.
On Tuesday, Ways and Means approved a tax break for private companies that invest in public ports and a tax break for Avex, a company in New Iberia whose website bills it as “the world’s leader in aviation exterior painting.”
Sen. Fred Mills, R-Park, said Avex needs the tax break to keep pace with companies in other states.
Rep. Mark Abraham, R-Lake Charles, sought to take away a tax break. He wanted to eliminate an $18 per child tax break for parents with children in public K-12 schools and a tax deduction worth about $200 per child in private schools. His House Bill 202 would raise $41 million per year and, combined with another bill, would direct the money to colleges and universities to prepare workers for jobs needed in the economy.
However, Abraham faced a torrent of complaints from committee members that he was trying to take away money from hard-working citizens. The committee killed the bill.
About the only legislator who has raised a concern about any of the tax breaks awarded by Ways and Means so far has been Rep. Jay Morris, R-Monroe.
“This is only one of several bills that would injure our state fisc going forward and make our job more difficult,” Morris said at one point at the May 15 hearing. “You know what they say: A million here and a million there, and pretty soon you’re talking about real money.”
Morris is the sponsor of legislation that would renew the sales tax on some 100 transactions on two cents of the five-cent sales tax. It would raise $173 million per year. The House rejected the measure, House Bill 609, last week after Democrats, in a parliamentary move, voted against it to deny the necessary two-thirds super-majority. Morris is hoping to try again in the coming days.
Jim Richardson is an economics professor at LSU who co-chaired the task force with the state revenue secretary. A veteran adviser to legislators, Richardson is philosophical about how few of the group’s proposals the Legislature seems inclined to adopt.
“We always appreciated that actually preparing a study and making recommendations is much easier than doing it,” he said. “That’s just the way the world is.”
The way the world works, Richardson added, is that tax giveaways add up and cost money – but legislators still like them.
“You do it one by one, and it means you have to have higher rates,” he said. “Then you need more exemptions to offset the higher rates. That’s where the system falls apart.”