At $7 billion and counting, the cost of tax exemptions and credits to the state is huge. But as a practical matter, the Legislature’s chief economist says, the bulk of the state’s exemptions involve sensible issues that are built into the structure of the tax code. The Louisiana Constitution, for example, eliminates sales tax on groceries and residential utilities, and politically that would be very hard to change. Exempting local government purchases from sales tax is one of the ways that exemptions can make sense.
But even with a lot of winnowing down the list, Greg Albrecht, of the Legislative Fiscal Office, said the tax benefits that can and should be revisited remain in the hundreds of millions of dollars.
That was not news in Albrecht’s talk to the Press Club of Baton Rouge, as the problems with state cuts to colleges and other institutions pile up in the budget, but tax breaks for favored businesses are “on autopilot.” The Advocate’s recent special report, “Giving Away Louisiana,” outlined some of the big ones, including those for the film industry, oil and gas producers, and other well-connected groups in the State Capitol.
But Albrecht also provided some perspective on the changes that have occurred over the years to make tax breaks more lucrative for the recipients.
As a veteran watcher of the legislative process, Albrecht noted that many of the restraints on the tax breaks have gradually gone by the wayside. Even those that in theory must be reviewed on their effectiveness are typically renewed or even expanded. “We rarely tweak them down. We usually tweak them up,” Albrecht said.
And while earlier tax credits were nonrefundable, the current ones are almost all refundable. That means that the taxpayer does not have to show any Louisiana tax liability to get a refund check for the amount of the credit — in the case of the film industry, 30 percent of in-state costs. While a nonrefundable credit is a cost to the Treasury, the taxpayer typically has to show a tax liability sometime in five to 10 years to get the benefit.
In both cases, though, Albrecht said that the state’s generosity is channeled through the tax system but is in fact a subsidy just like any other check the state writes. “In almost every case we are reimbursing a private person or company from public money,” he said.
That’s the bottom line, Albrecht said: “This stuff is spending.” The spending for these favored industries is not weighed against other state needs, as would be the case for the regular appropriations process. “This spending is open-ended and unappropriated,” he said.
That’s a recipe for disaster for state finances.