Last week, Gov. John Bel Edwards cited the recommendations of a Blue Ribbon Task Force as his guide for major changes to Louisiana’s tax code. His proposals, however, differ substantially from those bipartisan recommendations.
First, the governor suggests repealing the temporary 1 percent sales tax and replacing it with a 4 percent sales tax on new services and products. He also proposes repealing the federal income tax deduction for individuals and corporations and lowering the rates. And that’s where the similarities to the Task Force end.
In order to raise close to $1 billion in new revenue, the governor seeks to impose a new Commercial Activity Tax, which is just that — a tax on all commerce in Louisiana. Also known as a Gross Receipts Tax, it is almost universally panned as bad for the economy and bad for consumers by national experts on both the left and the right. Only five states levy it, and four states have repealed it in recent years due to the pyramided costs, disincentives to entrepreneurship, and disproportionate harm to in-state small and medium-sized companies.
Does that sound like what we need in Louisiana? This state has lost 25,000 jobs since the recent peak of the economy in 2014. Employers and families are struggling to stay afloat, but have already paid $1.3 billion more in state taxes this year than last year.
Instead, the governor chose to blame the state’s employers for the current challenges, stating it’s time for them to pay their “fair share.” Well, I think it’s time to put rhetoric aside and review the facts.
According to the independent Council on State Taxation, Louisiana businesses pay $9 billion annually to state and local government, representing almost half of all taxes collected in the state; the national average of business state/local tax share is 44 percent.
In addition to individual and corporate income tax, employers in Louisiana pay the majority of property taxes and half of sales taxes in the state — at the highest rate in the nation. Businesses pay a franchise tax and an inventory tax in Louisiana, which most states don’t even have. Employers pay excise taxes like severance and gas tax. Furthermore, new data shows that the often-cited corporate exemptions are not the culprit either, as the major credits are down roughly 60 percent. To allege that businesses aren’t paying their “fair share” ignores the facts.
What is behind the current deficit? State economists have repeatedly cited Louisiana’s persistent job losses — 25,000 in the past two years — as the driving factor behind the state’s deficit. Rather than ignoring this reality, the governor and Legislature should look outside the State Capitol and react accordingly.
For that, leaders should look back to the Blue Ribbon Task Force. The inventory tax and credit were both recommended for repeal, a move that would be nationally recognized as good policy that could spur investment and growth. The Task Force suggested budget reforms, as well, such as the elimination of statutory dedications, which were also ignored in the governor’s plan.
While there may be some elements of fiscal reform in this plan that were cherry-picked from the Task Force, the centerpiece of the governor’s proposal is to raise $1 billion in taxes on employers fighting a statewide recession. Without question, this approach will lead us right back to where we started: a down economy and a prolonged deficit.