This year’s legislative session starts in April, and CABL will be working with our RESET Louisiana partners, PAR, and the Committee of 100, on a full legislative agenda. Prior to the session we are highlighting some of the issues we will be focusing on. This time, we look at state fiscal policies.
In 2019, RESET published a policy paper calling on state leaders to “Create a Fair and Competitive Tax Environment.” Among other things, it promoted eliminating deductions to lower individual and corporate income tax rates and creating a centralized sales tax collection system.
It’s striking that with the legislative session approaching, the Speaker of the House, the President of the Senate, and a number of other key legislative leaders are calling for much the same thing. In many respects, the approaches they are taking with legislation this session, mirror the items in the RESET agenda for state tax system redesign:
- Increase stability and lower rates for the individual income tax.
Eliminate the deduction of federal taxes for Louisiana individual income tax filers to allow lower tax rates and a more stable and predictable source of revenue with neutral net impact. The deduction ties the tax liability of Louisiana taxpayers, and ultimately the state’s revenue outlook, to changes in the federal tax code. Louisiana’s 6% top rate is an outlier. Only two other states have a full federal deduction; only Louisiana has it in its constitution.
- Reduce the corporate franchise tax burden and compliance concerns.
Phase out, eliminate, or restructure the corporate franchise tax. Louisiana is among a small and declining number of states with this complex and antiquated type of tax. Raising the floor of the taxable base, as one reform option, would relieve the regulatory problems and litigation expenses for the majority of corporations, with minimal revenue impact.
- Lower rates for the corporate income tax.
Eliminate the deduction of federal taxes for corporate income tax filers to allow adjusted tax rates with neutral net impact or as an offset for reducing the franchise tax. Either the top rate, which is among the highest in the nation, or lower bracket rates could be adjusted.
- Centralize and simplify sales tax collections.
Louisiana is one of the few states where local governments collect the sales tax, a system that places businesses at a disadvantage because of multiple audits, different rules, varied rates from place to place, and a lack of uniformity. A more centralized system — involving and protecting local governments — would enhance business compliance and possibly collections. Louisiana’s current system is vulnerable to constitutional and court challenges.
- Establish a more fair and efficient sales tax audit system.
Under the current sales tax enforcement system, businesses face an onerous situation that can bring multiple audits simultaneously from various jurisdictions. The system is punitive even when operating normally with companies in compliance.
Right now, it appears there is good momentum for centralizing and simplifying sales tax collections and audits, as well as reducing individual and corporate income tax rates in a revenue neutral fashion. Legislative leaders also want to reduce the corporate franchise tax and phase out the property tax on inventory.
Those will likely be trickier, but addressing any of these issues will still be a heavy lift because a number of them will require constitutional amendments. That involves both a two-thirds vote of the Legislature and approval by voters.
None of these are new ideas. They represent concepts and principles that our RESET partners, legislative task forces, and prominent state economists have advocated for years. The difference now is that legislative leaders are now jumping on board making elements of the 2019 RESET agenda a part of their own priorities.
That won’t assure that everything will pass, but it opens a window of opportunity that our state can ill afford to lose.