A blue-ribbon panel is planning to issue a stinging denunciation of Louisiana’s tax system on Thursday, when it meets to approve a final report that follows nearly a year of study.
Louisiana’s tax system needs wholesale changes that will result in lower tax rates and fewer tax breaks, reports The Task Force on Structural Changes in Budget and Tax Policy.
“A failure to act is not an option,” declares a draft version of the report up for approval on Thursday.
But while the state Legislature created the task force last year, whether lawmakers will actually adopt the far-reaching recommendations is an open question.
The task force report shows that legislators – especially during the eight years during the administration of Gov. Bobby Jindal – created more and more tax breaks for high-income individuals and corporations.
The task force is now calling on lawmakers to reverse course and eliminate many of the tax exemptions and exclusions. Doing this in turn would allow lawmakers to reduce tax rates.
“But the question now, given the imbalance between state expenditures and projected tax receipts, is whether we choose to sustain or increase high rates on taxes or eliminate some of the exemptions, deductions, and credits,” reads the draft report, which was obtained by The Advocate.
In 2016, legislators, facing a budget crisis inherited from Jindal and the previous Legislature, approved a series of patchwork trims to tax breaks while raising cigarette and alcohol taxes and increasing the state sales tax by a penny. Most of the changes – including the 1-cent sales tax increase – are temporary and will expire in mid-2018.
Gov. John Bel Edwards and the Legislature also cut about $450 million in spending last year.
In 2016, legislators resisted making dramatic changes to the tax system sought by Edwards, instead preferring to authorize the task force, which began meeting weekly in March. LSU’s Jim Richardson, the state’s leading public policy economist, and Kimberly Robinson, an Edwards appointee who heads the state Department of Revenue, co-chaired the panel.
The task force is asking lawmakers and the Edwards administration to continue efforts to reduce wasteful government spending. But the panel doesn’t believe that big dollar savings are available, after major efforts by the Jindal administration to cut spending.
Most of the report, though, focuses on problems with the tax system that have contributed to the budget problems that began under Jindal, who in 2008 inherited a $1 billion budget surplus from Gov. Kathleen Blanco.
Lawmakers under Jindal repeatedly chipped away at the state’s ability to raise revenue, in the name of promoting jobs and investment.
In 2008, the state awarded 51 cents in sales tax breaks for every $1 it collected in sales taxes, the study panel found. In 2015, the state gave away $1.18 in sales tax breaks for every $1 it collected in sales taxes.
In 2008, the state awarded $1.08 in corporate income tax breaks for every $1 in corporate taxes it collected. In 2015, the state awarded $2.72 in corporate income tax breaks for every $1 in corporate taxes it collected.
The task force heard from business lobbyists, businessmen, local government officials, accountants, economists and others over weeks and weeks of public testimony. The panel issued a short set of recommendations in November.
Legislative leaders have not embraced the report.
Many of the recommendations will require politically difficult choices, something that legislators have mostly avoided in recent years, especially during the Jindal era when they depleted the state’s reserve funds and repeatedly authorized more spending than tax revenues would ultimately allow.
One of the task force’s recommendations is to eliminate the provision that allows taxpayers to deduct, on their state tax returns, the income taxes they pay to the federal government. This change would net $900 million a year and mostly hit higher-income taxpayers.
Legislators, led by Republicans, rejected this proposal during the second special session in 2016. The proposal was coupled with lowering the top individual income tax rate.
Lawmakers did approve no longer permitting corporations to tax the federal tax break – in conjunction with lower tax rates – but voters statewide rejected the proposal in November.
The panel is also recommending that lawmakers roll back the 1-cent sales tax increase and offset the lost revenue by making more activities subject to the sales tax, a process known as broadening the base.
The task force is recommending that the Legislature allow local governments to raise sales taxes without legislative approval – as a means to wean local governments away from their reliance on state dollars, which in turn would help the state more easily balance its budget.
Another recommendation calls for halving 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.
The House Ways and Means Committee killed this proposal during the second special session last year when nine Republican members of the committee joined with the committee chairman, state Rep. Neil Abramson, D-New Orleans, to reject it. Abramson afterward said he couldn’t be sure whether the proposal would raise taxes on low- and middle-income taxpayers.
If just about everybody knows the answers to the questions, why is the test of tax reform so hard?