A complicated tax swap involving individual income taxes cleared a key hurdle Thursday when it won approval from the Louisiana House, but it faces several more steps before it could be carried out, including approval by voters.
House Bill 274 would eliminate a popular tax break taken primarily by upper income taxpayers that allows them to deduct their federal payments on their state income tax returns.
In exchange, all taxpayers would pay state taxes at lower rates, although the top rate would drop the most.
Tax experts have sought the change for years, saying it would simplify Louisiana’s tax system, while making living and investing in the state more attractive because of the lower rates.
The swap would raise no extra money for the state, legislative economists say, which is important for conservatives. Gov. John Bel Edwards, a Democrat, has voiced support for the change because it would not cut tax revenues.
The tax swap now goes to the Senate. Rep. Stuart Bishop, R-Lafayette, the House sponsor of the package, told his colleagues that he expects it to pass there and end up in a conference committee that will put together a final version of the bill that both the House and Senate must approve.
HB274 passed 98-2 after no debate, a day after it received 66 votes, four short of clearing the 70-vote super-majority level needed for tax measures in the 105-member House.
Twenty-one Democrats voted for HB274 on Thursday, a day after voting against the measure the day before.
The change was the result of behind-the-scenes negotiations between the House Republican leadership and the Legislative Black Caucus, in the wake of racial tensions that led Speaker Clay Schexnayder, R-Gonzales, to oust Rep. Ray Garofalo, R-Chalmette, who is White, as chairman of the House Education Committee.
Schexnayder and Bishop thought the Black lawmakers would vote for the measure on Wednesday. But the Black legislators left to meet in a side room just before Bishop brought up the bill and decided to vote against it as part of a negotiating strategy.
They met with Schexnayder Wednesday night and Thursday morning to come together.
"We finally feel more comfortable that they’re working in good faith with us on some of our priorities," Rep. Ted James, D-Baton Rouge and chair of the Legislative Black Caucus, said in an interview. He cited measures sponsored by Democrats that would give tax credits to the poor and for children and a bill that would provide a sales tax exemption for feminine hygiene products and diapers.
Bishop had promised to bring back HB274 on Thursday since he had come so close the day before.
“The bill has a long way to go and a short time to get there,” Bishop told his colleagues in making a short pitch for the bill. He faced no debate or questions.
“Right on, Bishop!” someone called out as the vote board lit up with green yes votes a minute later.
“This is one of the first steps in true comprehensive tax reform we have tried to do for decades, several several decades,” Bishop told his colleagues after the vote.
Several minutes later, Bishop walked up and down the aisles, shaking hands with some House members, bumping fists with others.
HB274 would put the tax swap on the ballot for voters in the fall of 2022 as an amendment to the state Constitution.
House Bill 278 by Bishop, which passed Wednesday with no votes to spare, is part of the tax package and would spell out the specifics of the change.
Under it, the 6% income tax rate would drop to 4.25% on net income above $50,000, the 4% rate would drop to 3.5% on net income between $12,500 and $50,000 and the 2% rate would drop to 1.85% on net income on the first $12,500 of income.
The tax swap has the support of such groups as GNO Inc., the Pelican Institute for Public Policy, the Public Affairs Research Council, the Louisiana Association of Business and Industry and the National Federation of Independent Business.
They and Bishop all say that eliminating the federal income tax deduction is important because it would decouple Louisiana’s tax system from changes to the federal tax system.
Under current law, if Congress and President Joe Biden raise taxes, the state will lose tax revenue because Louisiana taxpayers will take bigger federal tax deductions on their state tax returns.
The legislative leadership is attempting to pass a companion measure that would carry out the same tax swap for corporate income tax measures.
Two pieces of it, House Bill 292 and House Bill 293, have passed the House and are before the Senate Revenue & Fiscal Affairs Committee. House Bill 275 has been parked on the House calendar for weeks until it has the votes to pass. Rep. Neil Riser, R-Columbia, is the sponsor of all three measures.