Gov. John Bel Edwards' sudden embrace of a plan to replace the state's corporate income tax with a corporate tax on sales is surprising on two levels.
For one thing, this was not one of the recommendations from a major state task force, or from any of the other major players who've been studying ways to stabilize Louisiana's perpetually desperate financial picture. Nobody of note outside the governor's office suggested it, and nobody seems to be pushing for it. Edwards himself, who has long targeted the upcoming legislative session as his best chance to pursue structural budget reform, has not been going around the state making a case for the idea, at least not until very recently.
Even more unexpected is that Edwards would advocate for something so ambitious.
Gov. John Bel Edwards settled on proposing to replace the state’s corporate tax on profits w…
In general, the governor tends to approach policy more cautiously. Until now, he's deferred to the experts and leaned on the good-government idea of following best practices. That's his nature, but it's also a recognition that he's not in a position to muscle his ideas through a Legislature dominated by Republicans, including a partisan House faction that doesn't want to give the Democratic governor a big win.
So where did this all come from?
Probably a place of sheer desperation.
Revenue Secretary Kimberly Robinson told The Advocate's Tyler Bridges last week that the governor's team watched voters reject last year's constitutional amendment to eliminate a major corporate tax break in exchange for reducing corporate income tax rates, and concluded that they'd have trouble getting support for a similar swap of individual income tax exemptions for a lower overall rate. That seriously limits the administration's range of choices, and apparently sent officials off in search of another idea. They found it in Ohio, which places a gross receipts tax of 0.26 percent on all sales.
But whether the proposal, which Edwards plans to flesh out on Monday, will fly here is not at all guaranteed.
On first glance, it seems to solve one intractable problem: By getting rid of the corporate income tax, the state would also eliminate some of the lucrative tax breaks that have drained the treasury in recent years.
Gov. John Bel Edwards wants to dramatically revamp Louisiana’s tax system when the Legislatu…
But the concept of a gross receipts tax itself has many critics.
Nationally, both the conservative Tax Foundation and the progressive Institute on Taxation and Economic Policy find it wanting. Locally, most major players are waiting for Edwards' full proposal, but the few who've weighed in hint at the challenges ahead.
Speaking to the Jefferson Chamber this week, GNO, Inc. President Michael Hecht conceded that there's a certain appeal in the idea's "conceptual simplicity" — "just tax everybody on everything" at a superficially low rate, as he put it. But overall, he argued that it's "bad policy" and rattled off five reasons why.
Hecht said that gross receipts taxes wind up being higher on low-margin businesses, such as grocery stores, than on high-margin companies; that products are taxed multiple times throughout the production process, with the compounded burden passed on to consumers; that the true total tax isn't transparent; that certain types of companies are "double taxed" under these systems on both income and gross receipts; and that the tax would make Louisiana less appealing to start-ups that are unlikely to show profit in their formative years.
That's at least one perspective from the business side, but gross receipts taxes aren't necessarily popular in other corners either, including among Edwards' natural allies. Jan Moller, who heads the left-leaning Louisiana Budget Project, said he wants to see the governor's plan, but has general concerns that this form of taxation, like individual sales taxes, disproportionately impacts lower income people.
The question, of course, is compared to what? Edwards hopes to end a temporary one-cent increase in state sales tax, which lawmakers instituted last year as an emergency measure, but keeping it may be more acceptable to some Republicans than the alternatives. There are other tax measures in the mix too, but none that have widespread appeal.
So while Edwards' sudden push for a gross receipts tax seems uncharacteristically bold, maybe the explanation is that he's run out of other ideas. This is the sort of thing that even a level-headed leader might propose once he realizes he has no good options.