Time for tax reform is here

The Louisiana Legislature meets Monday for the beginning of its 2021 fiscal session with tax reform as its major goal. We have heard tax reform promises before, and lawmakers haven’t delivered. Will they do it now?

Let’s begin by explaining why tax reform is so critical. The conservative Tax Foundation says our statelocal tax burden is 7.6 percent, which ranks Louisiana 45th among the states.

That’s a low tax burden, but the state also ranks 42nd on the foundation’s State Business Climate Index, and that’s bad. Louisiana is among the 10 states that are most unfair to business.

Michael Olivier, president of the Committee of 100 for Economic Development, offered one of the best explanations for what’s wrong with Louisiana’s tax system. Olivier served as secretary of the state Department of Economic Development under the late-Gov. Kathleen Blanco.

Olivier said, “The mark of good, fair tax design is low rates and relatively few deductions. Louisiana has the opposite — high rates and large deductions.”

The Legislature loves to give tax exemptions, exclusions, credits, deductions, reductions and rebates. Rep. Stuart Bishop, R-Lafayette, chairman of the House Ways and Means Committee, wants to eliminate 23 of those tax breaks and lower the income tax rate.

Unfortunately, other legislators want to give more than 23 tax breaks at the session. Believe it or not, there is actually a sales tax exemption for people who buy Mardi Gras beads. There are also countless other exemptions for too many taxes.

Olivier and another Louisiana business spokesmen have said the best first step towards improving the state’s business climate is to eliminate the ability of taxpayers to deduct two federal income taxes on their state income tax forms.

Less than 20 percent of the state’s income taxpayers itemize and get to claim those tax breaks. If the deductions are eliminated, income taxes could be lowered and everyone who pays them would save money.

Stephen Waguespack, CEO and president of the Louisiana Association of Business and Industry, said if the federal deductions were eliminated the top individual income tax rate could be reduced from 6 percent to possibly 4 percent. The 8 percent top rate for corporations could be reduced to possibly 5 percent, he said.

Bishop has a proposed constitutional amendment that reduces individual income taxes and eliminates the federal income tax deduction and everything but health care from federal excess itemized deductions.

It takes a two-thirds vote in the House and Senate to approve constitutional amendments. If they clear that hurdle, a majority of voters have to give their OK.

The Legislature voted to eliminate the individual and corporate federal income deductions at its 2000 session. The constitutional amendment passed the House 74-26, four more votes than the 70 required. The Senate vote was 26-12, exactly the 26 votes required.

The voters had other ideas and on Nov. 7, 2000, the vote to reject the amendment was 62 percent against to 38 percent in favor. The ability of corporations to deduct those federal taxes was rejected by 56 percent of the voters in 2016.

Bishop’s amendment may have a better chance this year since he has legislation linked to it that reduces income tax rates. Voters would decide the fate of the amendment on Nov. 8, 2022. If they approve it, the lower rates would be effective Jan. 1, 2023.

Voters should remember that less than 20 percent of income taxpayers itemize deductions. All of them, including the itemizers, would benefit from lower state income taxes.

The second major goal of the session is to set up a centralized system for collecting state and local sales taxes. There are currently 194 different sales tax jurisdictions in the state, which complicates the ability of businesses to pay their taxes.

Waguespack calls centralized sales tax collections “the holy grail of this session.” He said it doesn’t cost the state or local governments one dime, so it’s a no-cost issue to fix.

Speaker of the House Clay Schexnayder, R-Gonzales, is sponsoring the sales tax amendment, and that should give it some momentum. However, he knows he has to get the state associations for cities, parishes, school boards and sheriffs to buy into the plan.

Schexnayder said all of those stakeholders have pledged to work together to find solutions. Republicans have super majorities in both the House and Senate to get the job done. They have 27 senators, one more than two-thirds, and 67 representatives, three short of the 70 needed.

Democratic Gov. John Bel Edwards and Republican leaders have said tax reform has to be revenue neutral, which means there wouldn’t be any new revenues. Since our tax burden is already low, Edwards has also made it clear that there shouldn’t be any lower revenue than what is currently being raised.

The time for tax reform in Louisiana has been delayed far too long. This is a golden opportunity to get it done, and shame on any legislators who refuse to take the bold steps necessary.

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Jim Beam, the retired editor of the American Press, has covered people and politics for more than five decades. Contact him at 337-515-8871 or jbeam@americanpress.com.