Legislative Report

JBE’s CAT bill hits as budget hearings begin

by Mike Stagg

Can a Louisiana Democrat restore fiscal stability using Ohio Republicans' plan?

Rep. Sam Jones of Franklin introduced the central component of Gov. John Bel Edwards’ tax reform plan on Monday, one week after the opening of the legislative session and the day before the House Appropriations Committee begins its deliberations on the state’s budget.

Jones’ HB628 is the Commercial Activity Tax that Edwards maintains will help stabilize state finances while simplifying the state’s tax code and lowering taxes on most individuals and businesses.

The bill would impose a flat tax on businesses based on the amount of gross revenues generated by the enterprise. Under the bill as introduced, businesses with revenues between $150,000 and $499,999 would pay an annual state tax of $250. Those with revenues between $500,000 and $1,000,000 would pay $500. Those with revenues between $1 million and $1.5 million would pay $750. Businesses with revenues between $1.5 million and $3 million would pay $1,500, and those with revenues between $3 million and $6 million would pay $3,250. Business revenues between $6 million and $12 million would pay $6,500. Businesses with more than $12 million would pay $12,500.

There is a formula that would be used to tax revenues of interstate corporations and there are exemptions built in to protect non-profits, religious organizations, public utilities, cooperatives and political subdivisions.

The bill has not yet been assigned to a committee.

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Edwards overall plan is to broaden the tax base and lower existing tax rates. Currently in Louisiana, the state exempts far more corporate income taxes than it collects. The Louisiana Department of Revenue’s latest Tax Exemption Budget shows that the state collected only 9.4 percent of the corporate income taxes that are on the books because 90.6 percent of those taxes have been exempted under various state laws and programs.

Jan Moller of the Louisiana Budget Project says Edwards’ plan is based on Ohio’s tax, which has been in place for more than a decade.

“Texas has something closer to a European-style value added tax, which is essentially a sales tax,” Moller tells The Independent. “Ohio’s tax is a tax on businesses that do business in the state.”

This is how the Ohio Department of Revenue describes that state’s CAT: “The CAT is an annual tax imposed on the privilege of doing business in Ohio, measured by taxable gross receipts from most business activities. Most receipts generated in the ordinary course of business are subject to the CAT.”

The tax was enacted by a Republican legislature and signed into law by a Republican governor. It remains to be seen if Edwards can convince Louisiana’s Republican legislators — particularly those in the House — to consider the plan. Speaker Taylor Barras has publicly stated that he’s heard nothing but opposition against the idea and that was before it was introduced.

Once Barras assigns Jones’ bill to a committee (most likely Ways and Means) the challenge for the governor and his allies will be to find a way to get the bill approved by the committee. Part of the strategy and tactics involved will include timing. Republicans in the House have talked about being able to create a workable budget without new revenue. Edwards has called for specifics from them, which have not been produced.

Meanwhile, today the House Appropriations Committee will begin hearing presentations on HB1, the state budget. Appropriations Committee chair Cameron Henry is among the Republican revenue hardliners. The bill passed by his committee last year was heavily reworked by the Senate, a process likely to continue this year as senators are not generally as ideologically driven as House members.

That split among Republicans between hardliners and moderates could provide an opening for Edwards to make some progress on revenue considering the staggering needs of the state and another fiscal disaster waiting in 2018 with the expiration of temporary taxes passed in 2016. Those taxes were sold as a way to deal with the fiscal problems left in the wake of former Gov. Bobby Jindal’s tenure. They served their purpose but there are more days of reckoning for come.

Edwards is following the example set by his predecessor Mike Foster. Foster supported what became known as the Stelly Plan in 2002, which raised income taxes on top earners while exempting sales taxes on food, drugs and utilities. That plan was sold as a means to stabilize state finances. It unraveled when it was repealed in pieces during the Blanco and Jindal administrations.

In Jindal’s first year in office, legislators repealed the income tax portion of the Stelly Plan. Jindal signed it into law even though it was not part of his legislative program. The state has lurched from fiscal crisis to fiscal crisis since then.

Jindal proposed a reform of the state tax code of his own in 2013, but withdrew the plan as the legislative session opened.

Edwards has gotten his plan into the legislature. The outcome is anything but certain.