Tax cuts on table once again
Published 10:39 am Saturday, March 18, 2023
Louisiana’s Republican-controlled Legislature reduced taxes in 2021 and some GOP members would like to continue those reductions at their session beginning April 10. The state is flush with cash right now, but it has many needs like a $15-plus billion backlog of road and bridge maintenance and construction work.
The Public Affairs Research Council in its January budget commentary talked about that rosy financial picture. It said billions of dollars in federal pandemic aid and hundreds of millions more from better-than-expected state tax collections is welcome news but called for cautious spending.
Last year’s surplus totaled $699 million and another $847 million is extra money expected this fiscal year. An extra $869 million is expected next year and legislators have another $1.4 billion in federal pandemic aid to spend.
Much of that money has to be spent on one-time expenses. Millions more goes to the state’s Rainy Day Fund and to pay retirement debt. The federal government talks like it wants some of the pandemic money back.
The state is going to lose $371 million when the temporary 0.45% state sales tax approved in 2018 goes off the books in 2025. The general fund will lose another $375 million in vehicle sales taxes going into a transportation fund.
Cutting too many taxes now is a bad move. As PAR said, “Louisiana has an unfortunate history of squandering its money or making poor decisions when unexpected dollars arrive.”
The agency reminded readers about what happened after a sizable influx of cash came into the state following Hurricane Katrina in 2005. Then-Gov. Bobby Jindal and the Legislature in 2008 slashed taxes, like the Stelly income tax plan, “a move that caused years of budget gaps and financial problems for the state.”
The state’s current 4.45% state sales tax is the 38th lowest in the country. Unfortunately, high local sales taxes make the combined tax the highest in the country.
Efforts to remove a temporary 0.45% state sales tax increase earlier than 2025 when it goes off the books failed in the 2022 session, but two legislators want to try again.
Rep. Tony Bacala, R-Prairieville, sponsored the 2022 bill that would have reduced the tax increase before 2025. His legislation passed the House 67-30 but died in the Senate.
Bacala is trying again with House Bill 62. It would reduce the temporary state sales tax from 0.45% to 0.25% beginning July 1, 2024. Rep. Stuart Bishop, R-Lafayette, in HB 71 would reduce the temporary tax from 0.45% to 0.30% beginning this July 1, and from 0.30% to 0.15% beginning July 2, 2024.
Sen. Bret Allain, R-Franklin, is sponsoring three major tax changes. His Senate Bill 1 would repeal the state’s corporate franchise tax. In SB 2, a proposed constitutional amendment, he wants to phase out the state’s inventory tax over five years.
The current corporate income tax is 3.5% on the first $50,000 of taxable income, 5.5% above $50,000, but not in excess of $150,000, and 7.5 percent on taxable income over $150,000. In SB 19, Allain would change the tax to 2% on the first $50,000 of income and 4.75 percent of all taxable income above $50,000.
Louisiana’s corporate income taxes are currently 15th highest in the country. New Jersey has the highest top rate at 11.5%, according to the Tax Foundation. North Carolina is ranked 44th in the country with a top rate of 2.5%, the lowest top rate in the country.
Utah is ranked 39th lowest with a top rate of 4.85%. So if Allain’s legislation is successful, Louisiana at 4.75% would be lower.
The Tax Foundation reports that Nevada, Ohio, Texas, and Washington don’t have a corporate income tax but do have a gross receipts tax with rates that aren’t comparable to corporate income tax rates. South Dakota and Wyoming don’t levy corporate income or gross receipts taxes on businesses.
Louisiana’s state government is doing well at the moment and PAR said as lawmakers increase spending on long-term and ongoing programs, they should target needy areas like early childhood education, which equips youngsters for life.
If the three tax bills that Sen. Allain is sponsoring don’t prove too costly, they are good tax moves for businesses. However, trying to end that 0.45% tax increase early is one reason why PAR said citizens have become skeptical about the government’s ability to smartly invest its windfalls.
A new governor and Legislature take office next year. They deserve a better financial welcome than Edwards and legislators got when they took office for the first time in 2016 facing a $2 billion deficit.