HB1 represents the House version of the state's spending priorities for the fiscal year that begins July 1.The House sent the state budget to the Senate last week.
Attention of House members now turns to revenue measures that address how the state taxes, what it taxes, and what it does not tax. There were 40 bills on the Ways and Means Committeeagenda when it convened Mond;ay morning at 9:30. The committee is not expected to work its way through the entire list today, meaning it will likely reconvene tomorrow to finish its work.
The budget is based on funding state operations at 97.5 percent of the official estimate produced by the Revenue Estimating Conference. Rep. Cameron Henry, chairman of the House Appropriations Committee, told his colleagues last week "there is only one certainty in state government and that is that the REC estimate will be wrong."
Henry said using a percentage of the REC revenue estimate would reduce the likelihood that the state would face another round of midyear budget cuts in 2018.
Instead, the House budget makes the cuts up front, primarily in programs dealing with social services and healthcare. Nearly half of the $600 million cut the House made from the budget proposed by Gov. John Bel Edwards come out of programs administered by the Louisiana Department of Health and the Department of Children and Family Services.
If those cuts are going to be restored without being shifted to other departments and programs, more revenue will be needed. If additional revenue will come, constitutionally and politically it will have to originate in the House. The Louisiana Constitution provides that all revenue measures originate in the House. Bills that are tax-related have been known to be amended in the Senate in such ways as to become revenue bills. Even then, the measures require concurrence from the House in order to become law.
Much of the tension between the Edwards administration and House Republican leaders arises over their differing views over the need for additional revenue. Edwards' budget, which the administration proposed in February, funded state government operations at 100 percent of the REC estimated state revenue for the next fiscal year. The governor also proposed an ambitious but vague tax reform package that centered on the Commercial Activity Tax, which died in Ways and Means early in the session.
This week House members will see if if there is any appetite for new revenue, starting in Ways and Means.
The bills range from complete tax code overhauls to specific tax changes.
HB355 by Rep. Barry Ivey of Baton Rouge would completely revise the state tax code, apply flat tax rates to individuals and corporations. The 23-page bill includes an 11-page digest explaining it.
HB648 by Rep. Kenneth Havard of Jackson would levy the Louisiana Business Tax. If it became law, the tax would apply to any business with income above $500,000. The tax rate for businesses with income between $500,001 and $5 million dollars would be 1.5 percent. For businesses with income above $5 million, the tax rate would be 2 percent.
The tax proposal has drawn the attention of LABI, which is said to be wary of the bill. Louisiana revenue from corporate income taxes has withered away over the past decade primarily due to exemptions enacted by a succession of legislators and governors. The Louisiana Department of Revenue's Tax Exemption Budget for the current year shows that Louisiana exempted about 90 percent of corporate income taxes in the fiscal year that ended last June. The state collected $145 million in corporate income taxes out of a total $1.5 billion in corporate income that could have otherwise been taxed.
The complexity of Havard's proposal might well undermine its chance for passage. The Legislative Fiscal Office could not develop a fiscal note for the tax, saying in its document that it was unable to develop an accurate estimate of how much revenue it might produce due to the complex interplay with the corporate income tax (which would be repealed) and the inventory tax which would remain on the books.
Those hoping for some positive sign on revenue might draw a glimmer of encouragement from HB637 by Rep. Lance Harris, chairman of the House Republican Caucus. The bill would eliminate a state income tax credit that was created in the wake of the storms of 2005. It allowed taxpayers to get an income tax credit equal to 25 percent of the increased fees paid to help the Louisiana Citizens Property Insurance Program recover from the losses it incurred as a result of damage from hurricanes Katrina and Rita.
Eliminating the tax credit will produce just over $11 million per fiscal year, according to the fiscal note on the bill.
As leader of the House Republican Caucus, Harris has immense power when it comes to revenue issues. It takes a 2/3 vote in both the House and the Senate to approve taxes. In the House, Republicans hold 60 of the 105 seats.