BATON ROUGE, La. — Louisiana legislators reconvened at the state Capitol on Wednesday for the third special session of the year, this one concentrating on tax reform.
With the state facing a projected budget shortfall exceeding $700 million for the next fiscal year, primarily due to the cessation of a temporary 0.45% sales tax and a tax on business utilities, Governor Jeff Landry is advocating for a comprehensive revamp of the state’s tax framework. His proposed reforms include retaining the sales tax while allowing the expiration of the business utilities tax. Additionally, he seeks broader constitutional amendments that would require voter approval during statewide elections scheduled for March.
Among the initiatives being put forward by the governor is the simplification of income and corporate tax rates. To compensate for the revenue loss, Landry proposes extending the sales tax to add various services and digital products, such as streaming services like Netflix, lobbying, dog grooming, and car washes.
Landry also aims to consolidate two state trust funds that currently hold almost $3.8 billion. This proposal would result in reduced funding to the state’s savings account, allowing for increased spending by lawmakers from corporate taxes and mineral revenues, as per an analysis by the Public Affairs Research Council, a nonpartisan think tank based in Louisiana.
Plans are also in motion to remove multiple tax incentives, including those benefiting the film industry and historic renovations. Advocates believe that these alterations in corporate and income tax structures could attract new businesses, making Louisiana more competitive with neighboring states amid concerns about population decline.
At present, Louisiana has 223 sales tax exemptions, according to Richard Nelson, Secretary of the Department of Revenue.
Nelson remarked, “I would say the tax code is one of the major drivers of why Louisiana fails to get ahead,” during a panel discussion on tax reforms held on August 30.
Matthew Willard, the Democrat Minority Leader, expressed doubt that flattening the individual income tax would enhance Louisiana’s economic situation, voicing concerns that it might worsen the state’s deficit.
According to the state’s Department of Revenue, residents currently pay a 4.25% income tax on earnings over $50,000, 3.5% for income between $12,500 and $50,000, and 1.85% for those earning less than $12,500. If implemented, Landry’s plan would exempt income up to $12,500 from taxation and apply a flat tax rate of 3% on earnings above that threshold.
Among the nine states that do not impose an individual income tax are Florida, Tennessee, and Texas.
An analysis from the former chief economist for the state legislature, backed by a coalition of nonpartisan public policy organizations, suggests that a large segment of Louisiana’s population would see considerable tax reductions as a result of the proposed income and sales tax changes. Specifically, more than 1 million households could experience a 20% cut in their state-level taxes.
The reform plan aims to eliminate the corporate franchise tax and reduce the corporate income tax rate to a flat 3.5%. Currently, the corporate profit tax rates fluctuate, with a 7.5% rate when profits exceed $150,000, a 5.5% rate for profits between $50,000 and $150,000, and a 3.5% rate for profits below $50,000.
Critics have raised alarms that the proposed reforms could result in overly generous tax breaks for corporations. “It’s small business subsidizing big business, is basically what it is, and that’s not right,” commented State Senator W. Jay Luneau, a Democrat, during a Senate hearing on October 24.
Lawmakers from both major parties voiced their intent to safeguard local parish governments from revenue losses arising from the tax changes. The proposed adjustments could encourage local government stakeholders to eliminate property taxes on business inventory and end local taxes concerning prescription medications and incentives.
Nelson stated that the proposed adjustments would help prevent citizens from facing taxes on medical necessities, switching the burden instead to consumer services like landscaping. “My neighbors are going to crucify me,” predicted Republican Senator Stewart Cathey, Jr., referring to the prospect of taxes on lawn-mowing services.
Lawmakers acknowledged potential strong opposition from numerous special interest groups that would lose their long-established tax breaks. They have also expressed concerns regarding whether the timeframe post-national elections would be sufficient for thorough discussions and considerations of such significant policy shifts.
Daniel Erspamer, CEO of the Pelican Institute, a conservative think tank, praised the move to simplify Louisiana’s tax code as long overdue and commended the administration for addressing this complex issue. “I’m pleased that the governor really said, you know, let’s put our money where our mouth is and get this thing done,” Erspamer stated. “We’ll see how the Legislature feels about that.”
While Landry has emphasized the tax reform focus on this special session, his proclamation identified 23 additional items for discussion, including teacher salary increases and possible adjustments to the state’s judiciary system.
The special session is set to commence at 3 p.m. on November 6, with Landry scheduled to deliver remarks to the legislative assembly on the opening day. The session must conclude by 6 p.m. on November 25.