Photo by Elisa Rolle/WikimediaLouisiana's lawmakers are being urged to make sweeping changes to the state's sales, personal income and property tax policies, in an effort to end state government's boom-and-bust budgeting cycles.
A 13-member study group of economists, tax experts and other policy leaders, created by state lawmakers, released its proposals Wednesday after months of work. The ideas will form the basis of a planned tax overhaul debate in the 2017 legislative session.
The proposals, "if adopted as a comprehensive set of reforms, will help to establish a long-term, stable foundation for Louisiana's finances," Revenue Secretary Kimberly Robinson and LSU economist Jim Richardson, co-chairs of the task force, wrote to legislative leaders.
The pair wrote that they believe the recommendations would provide sufficient money to run state government while also being "fair, easy to comply with and competitive with other states."
The recommendations would lower tax rates, broaden what items are subject to taxes and reduce the number of complicated state tax breaks.
SALES TAXES
The task force suggests ending the 1 percent state sales tax hike temporarily enacted by lawmakers earlier this year and keeping the rate at a maximum of 4 percent.
To make up for the lost revenue, the group recommends sweeping in more items to sales tax charges. For example, it wants to end a tax break for business utilities and suggests the sales tax should be expanded to cover services such as cable television, web hosting and security services.
Also proposed is a uniform system of sales tax collections across Louisiana, rather than parish-by-parish tax administration.
PERSONAL INCOME TAXES
The report offers two options for rewriting Louisiana's personal income tax laws.
The first would require a constitutional change needing support from voters. Taxpayers would give up their state tax deduction for federal income taxes. The nearly one-quarter of taxpayers who itemize deductions on their personal income tax forms would only be able to take 50 percent of the federal excess itemized deductions they can currently deduct. In exchange, tax rates would be lowered for most people.
The other option, which would only require support from state lawmakers, would eliminate federal excess itemized deductions and keep the current tax rates, but people would reach the higher tax brackets with smaller amounts of taxable income.
BUSINESS TAXES
Task force members are supporting a constitutional amendment on the ballot in next week's election that would do away with a tax break that allows businesses to deduct the federal income taxes they pay from their state tax liability. Corporations in exchange would be taxed at a flat rate of 6.5 percent, rather than varying rates from 4 percent to 8 percent, starting in 2017.
Also recommended is possible elimination of the corporate franchise tax, but only after further analysis to be presented to lawmakers in 2019.
PROPERTY TAXES
One of the more contentious suggestions involves a 10-year phase-out of the local property taxes charged on business inventory, which would siphon away a sizable source of tax income for municipal governments. The task force also recommends a 5-year elimination of the tax credit given to businesses for the inventory taxes they pay, which costs the state hundreds of millions annually. The group offers several options for local government agencies to replace the lost tax money, like higher property tax charges to homeowners.
The report also suggests requiring local government involvement in decisions about 10-year property tax exemptions for manufacturing facilities, decisions that have been made by state government officials even though they strip money from municipal agencies.
STATE SPENDING
While lawmakers, particularly House Republicans, sought spending recommendations from the task force, the group was more general on those suggestions. The task force suggests continued scrutiny of state contracts, a tightened approach to revenue forecasting and deeper review of trust funds, tax credits and protections that keep areas protected from budget cuts.