A day after two major tax bills got out of committee with relative ease, day three of the Louisiana Legislature’s fiscal session demonstrated how complicated and politically difficult lawmakers’ promised tax overhaul may get.
Lawmakers have said they want to eliminate or reduce the cost of the state’s many tax breaks while lowering tax rates. They said they want to create a less complex system that is easier for taxpayers to navigate, doesn’t “pick winners and losers” and collects about the same amount of money as the current structure.
As Wednesday’s meeting of the House's tax writing committee demonstrated, however, implementing a revenue neutral tax overhaul involves a lot of moving parts and uncertain predictions, and every tax break has supporters who will argue vehemently on its behalf.
House Bill 292 by Rep. Neil Riser, R-Columbia, would amend the state constitution by eliminating the state deduction for federal taxes paid by corporations. The change would generate up to $89.7 million in additional annual revenue for the state, according to a state revenue department estimate.
Getting rid of the corporate exemption also decouples state tax policy from the federal government’s. Under the current situation, a reduction at the federal level creates a windfall for the state, but a federal tax increase can cause a shortfall.
Riser’s House Bill 293 would scrap Louisiana’s five corporate tax brackets and implement a flat 6% corporate income tax rate. The change would go into effect only if lawmakers and voters adopt HB 292’s constitutional amendment.
A state Senate committee advanced a proposal Tuesday to make a similar swap for individual taxpayers.
Even taking into account the loss of the federal tax break, the Department of Revenue estimated HB 293 would give corporations a collective annual tax reduction of almost $119 million, meaning that revenue loss for the state would have to be offset by other legislation to achieve revenue neutrality. To make the bill combo revenue neutral, the corporate income tax rate in HB 293 would need to be nearly 7%, about one percentage point below the current top rate of 8%, said Greg Albrecht, the Legislative Fiscal Office’s chief economist.
And the entire conversation depends on predicting corporate tax receipts.
“The underlying tax is highly volatile,” Albrecht said, adding that most corporate taxes are paid by large national and international companies that have “big swings in their profit base from year to year.”
The House Ways and Means Committee advanced HB 292 without objection. HB 293 advanced on a 10-6 vote, with the committee’s Democrats voting against.
Two lawmakers seeking to trim or eliminate a long list of tax breaks voluntarily parked their bills Wednesday. The Legislative Fiscal Office hasn’t created estimates of how much either bill would save the state.
Wednesday’s discussions, however, and the number of lobbyists turning in red cards indicating their opposition, illustrated how politically difficult simplifying the tax code can be.
“ House Bill 444 is probably the simplest, longest, and most controversial bill I have ever carried,” Rep. Stuart Bishop, R-Lafayette, who chairs the House Ways and Means Committee, said of his 100-page bill.
Bishop’s proposal calls for sunsetting hundreds of exemptions, credits and incentives by 2025. Supporters would be able to come back in four years to justify why their program should be extended, he said.
House Bill 454 by Rep. Phillip DeVillier, R-Erath, is a 35-page instrument that would slash the value of many exemptions, deductions and credits by half.
“I guess I’ll apologize to each one of you for all the calls and texts and emails you got about this bill [from opponents],” he said. “But I’m really not sorry about it.”
Lobbyists representing sectors including oil and gas, chemical manufacturing, banking, insurance and more lined up to defend their tax breaks. For example, Kevin Cunningham, representing property and casualty insurers, said his members pay premium taxes instead of income taxes, so the loss of their income tax credit would result in “double taxation.”
DeVillier pledged to work with stakeholders on their concerns. The authors voluntarily deferred House Bills 444 and 445, which keeps the measures alive for the rest of the session.
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