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Surprise new tax plan from Louisiana Gov. John Bel Edwards has people ‘eager for more details’

March 17, 2017
By Tyler Bridges
Originally Posted on The Advocate

Policymakers on the left, right and center of the political spectrum scrambled Friday to understand a surprise new tax plan favored by Gov. John Bel Edwards that would replace the state’s corporate tax on profits with a corporate tax on sales.

Most said they were trying to learn more about a proposal still without details that had not been part of the tax debate until it became public on Thursday.

“I don’t yet have any research that says what this will do,” Greg Albrecht, the Legislature’s chief economist, said in an interview. “I’m supposedly going to be educated on that.”

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Some pushback to the plan offered by the Democratic governor began to emerge Friday, coming from groups on the left as well as the right.

“What we’ve learned in general is that there are a few advantages but a lot of disadvantages,” said Jan Moller, executive director of the Louisiana Budget Project, a left-leaning nonprofit in Baton Rouge, who noted he was speaking only conceptually because Edwards has yet to release the details. “Corporate income tax is largely paid by shareholders of large corporations, while the gross receipts tax would be paid largely by Louisiana consumers. That represents a problematic shift.”

The Louisiana Association of Business and Industry, the state’s most powerful business lobby, has not taken a position yet. But Camille Conaway, the group’s vice president of policy and research, said in one tweet that four states have abandoned the tax in recent years. In another tweet, she linked to a 2007 research paper that panned the idea.

Edwards’ plan, which would establish what economists call a “gross receipts tax,” is modeled on the corporate tax system in Ohio. Businesses there pay a 0.26 percent tax rate on all annual sales above $250,000.

Ohio’s Chamber of Commerce has learned to live with the tax, which was approved by the legislature under then-Gov. Bob Taft, a Republican, in 2005 to replace two other taxes disliked by business.

“It seems to be a fairer tax because it’s broad-based and has a low rate,” Jeff McClain, the Ohio chamber’s director of tax and economic policy, said. “It’s blind to profits and losses. You can have a bad year and lose money and still have to pay the tax. Folks with small profit margins say it treats them less fairly.”

McClain said the tax generates different reactions among the chamber’s members. “We have some folks who love it and some who hate it,” he said.

Mary-Patricia Wray, a Baton Rouge-based lobbyist who moved from Ohio to Louisiana to attend Loyola law school, said she was getting a slew of calls from people who wanted sources in her native state who could provide more information.

The broad outlines of Edwards’ tax plan — which will also include major changes to the state sales tax system — emerged this week after he and his top advisers began privately briefing legislators and key interested parties. The governor will release the specifics on March 27, three weeks before the Legislature begins a 60-day regular session devoted primarily to the budget and taxes.

Even before Edwards’ corporate tax plan became known, legislators had been facing calls to find a way to end the state’s chronic budget deficits — by raising taxes, cutting spending or both — and to find ways to offset $1.2 billion in temporary taxes that will expire in 2018.

Under the governor’s proposal, the new corporate tax on sales would replace the existing corporate income tax and the corporate franchise tax. Sole proprietorships, Subchapter S corporations and partnerships all would be subject to the new tax, above a minimum sales threshold.

Kim Robinson, Edwards’ revenue secretary, said the proposal would level the corporate tax field by eliminating dozens of existing tax breaks that benefit certain industries. Instead, Louisiana businesses would pay less than 1 percent on their sales, even if they lost money.

Louisiana’s current corporate income tax rate is 8 percent, the highest in the Southeast and a disincentive to businesses to invest here, critics say. A major reason the rate is so high is that tax exemptions, exclusions and credits riddle the corporate code. Such breaks have proliferated over the past decade

In 2000, the state collected $1 in corporate taxes for every 87 cents it did not collect, according to a January report issued by a blue-ribbon task force. In 2015, the state collected $1 in corporate taxes for every $2.72 it did not collect.

In 2016, the state collected about $1 in corporate taxes for every $7 not taxed, according to the Tax Exemption Budget released last week by Robinson’s Department of Revenue.

Corporate tax collections have dropped because tax lawyers and accountants have found new ways to game the tax provisions, because the state’s oil-induced economic recession is drying up corporate tax revenue — or both.

Whether the governor’s new plan would be an improvement over the current corporate tax system was “the No. 1 topic of conversation among anybody following the fiscal reform debate,” said Robert Travis Scott, who is president of the Public Affairs Research Council, a Baton Rouge-based think tank.

Dawn Starns, the state director of the National Federation of Independent Business, was among those searching for answers Friday.

“A lot of folks are eager for more details and to understand what the governor is trying to accomplish,” Starns said.

One group that essentially has heard enough about the proposal is the Tax Foundation, a right-of-center research group in Washington, D.C., with sway in Louisiana.

Such sales taxes “are particularly harmful to start-up businesses because of ‘tax pyramiding,’ ” said Scott Drenkard, the group’s director of state policy. “You can think of it as a transaction tax. It will stack up, cascade or pyramid throughout the production process. Some people have characterized it as a sales tax on steroids. That’s a pretty good way to describe them.”

Drenkard said he is looking forward to coming to Louisiana to educate policymakers on the proposal.