Smokers will pay 22 cents more per pack under a tax increase passed by the state Senate on Saturday that Gov. John Bel Edwards will now sign into law.
As of April 1, smokers will pay $1.08 per pack in taxes, up from 86 cents.
Lawmakers approved the 22-cent increase to help fill the $900 million midyear shortfall legislators are tasked with eliminating during the special session.
Including the $11 million from the higher levy on cigarettes, the Legislature is $147 million shy of closing that gap for the fiscal year that ends on June 30.
Failing to fill that shortfall would result in the cancellation of classes at LSU and other universities; laying off nearly the entire support staff at the community and technical colleges; and sharply reducing state health care for the poor, Edwards has warned, in what is Louisiana’s worst budget crisis since the oil bust of the 1980s.
Under a budget bill approved by the Senate on Friday, the Edwards administration would make any cuts necessary to balance the budget if not enough revenue is found. The measure, House Bill 122, which cuts spending by $36 million, is now before the House.
As The Advocate reported Saturday,, business groups allied with the House Republican leadership are quietly pushing the Legislature to add an extra half-penny or full penny to the 1-cent sales tax increase already approved by legislators, to produce the additional money needed.
Senate President John Alario indicated Saturday that he is quickly warming to the idea and hopes that a final deal on the measure is reached on Monday, two days before the special session ends.
“It’s the only thing that keeps the ship from sinking at this point,” Alario, R-Westwego, told reporters after the Senate adjourned following a rare Saturday session. “The clock is running on us. We have to find options to make this work.”
Alario’s comments are particularly significant because he is an ally of Edwards and wields more power in the State Capitol than anyone other than the governor.
A former two-time House speaker who is serving his second term as Senate president, Alario discussed the plan in a 45-minute meeting Saturday morning with Edwards and House Speaker Taylor Barras, R-New Iberia, who is a strong supporter of it.
The governor hasn’t rejected the idea, said spokesman Richard Carbo. “(Edwards) is encouraging them to find the right balance between a sales tax increase on individuals and a business tax restructuring,” Carbo said.
Under the proposal, sales taxes in Louisiana would rise not by the 1 cent supported by Edwards and approved already by each chamber but by 1½ or 2 cents, beginning April 1. The sales tax increase would steadily decline before disappearing after two or three years and includes exemptions for equipment and machinery used for manufacturing, at the demand of business groups.
The Louisiana Association of Business and Industry is the prime mover behind the plan, but also pushing it are the National Federation of Independent Business, the Louisiana Chemical Association, the Louisiana Oil and Gas Association and the Louisiana Mid-Continent Oil and Gas Association.
“We feel like it gets us where we need to be,” said Dawn Starns, the National Federation of Independent Business’ state director, adding that the plan gives the Legislature time to devise a better system with fewer tax breaks coupled with lower tax rates.
Business lobbyists contend that businesses would pay half the higher sales tax.
Edwards seems to be demanding that the Legislature approve cutting some of the tax breaks that, according to recent studies, allow big companies to pay little or no taxes, before he could support the extra sales tax increase.
Sen. J.P. Morrell, D-New Orleans, wants businesses to give up some of the tax breaks they are fighting to keep.
“Businesses enjoy a variety of tax credits and exclusions that mitigate their overall tax liability,” said Morrell, who leads the Senate tax committee. “A single mom paying for diapers doesn’t have any exemptions.”
On Saturday, the Senate approved a watered-down measure that would create a commission to study which of the nearly 200 exemptions to sales taxes ought to remain on the books.
The commission would report its findings in March 2017, just before the Legislature would meet in a regular session where lawmakers could approve ending exemptions that no longer provide a benefit, said Sen. Page Cortez, R-Lafayette, the sponsor of Senate Bill 25. His bill originally sought to sunset all the sales tax exemptions, but pro-business Republicans objected.
All Democrats but one in both the House and the Senate voted for the 1-cent sales tax increase, House Bill 62, so Democrats’ support again would be crucial to approving the extra levy that business lobbyists and House Republicans are pushing. Republicans, who hold a majority in both the House and the Senate, split on the measure, which is now in a conference committee as lawmakers try to settle on a single version of the bill that both chambers can support.
Going beyond the already-approved 1 cent could prove a tough sell to Democrats because the sales tax hits the poor hardest.
For people who earn $27,000 a year or less, a 1 percent sales tax increase would cost them 0.8 percent of their income, while people who earn $1.4 million per year would pay only 0.1 percent more of their income, according to a 2015 analysis by the Louisiana Budget Project, a Baton Rouge-based group that favors higher taxes on the wealthy. A person who earns about $47,000 a year would pay $319 more annually under the 1 percent increase, or double under a 2 percent levy, the group says.
“Times of crisis call for shared sacrifice,” the Budget Project said in a statement Saturday. “But the deal being offered by big business interests to solve Louisiana’s historic budget shortfall would violate that basic principle by putting too much of the burden on working families that can least absorb a tax increase.”
The Budget Project said lawmakers instead could eliminate the sales tax exemption that businesses get when they pay their utility bills, a move that would raise $60 million this year and $240 million next year, when the state is facing a $2 billion shortfall. Businesses strongly oppose this idea, and legislators have yet to show support for it.
Increasing the cigarette tax also hits the poor harder, but few lawmakers voiced that concern in passing the measure.
Louisiana now will have the 33rd-highest cigarette tax in the nation, up from 35th, according to the Campaign for Tobacco-Free Kids, a Washington, D.C.-based group.
Rep. Walt Leger III, the New Orleans Democrat who sponsored the legislation, House Bill 14, said it would make Louisiana a healthier state by prompting smokers to quit.
But a coalition of anti-tobacco groups said HB14 doesn’t go high enough.
“You would have to see a 50-cent per pack increase to get any appreciable change,” said T. Bradley Keith, the group’s spokesman.
However, the increase won the support of Harold Ritchie, who was profiled by The Advocate last year as he pushed a cigarette tax increase in his final year as a state lawmaker that ended up being approved at 50 cents per pack.
“We take what we can get,” he said Saturday.
In 2015, Ritchie had been smoking for 50 years and had failed at numerous attempts to stop smoking.
But on Aug. 11, he smoked two cigarettes before dawn outside his home in Bogalusa and stopped cold turkey.
“I just decided I didn’t want to be a nicotine addict anymore,” he said Saturday. “I’ve got six months behind me, and I’m doing good.”
Follow Tyler Bridges on Twitter, @TegBridges. For more coverage of government and politics, follow our Politics Blog at http://blogs.theadvocate.com/politicsblog/.