In a surprise to many, Gov. John Bel Edwards signaled last week that he will propose a fairly dramatic change to the way Louisiana taxes businesses.
Lawmakers will weigh Edwards’ proposal during the regular legislative session that begins in early April. Edwards is expected to roll out the details of his plan next Monday, March 27.
According to published reports, Edwards wants lawmakers to do away with taxing the net income that businesses report to the state. In its place would be a tax on gross sales, also known as a gross receipts tax. Apparently, the Edwards plan is similar to the way the state of Ohio taxes businesses there.
As part of the change, lawmakers would eliminate a one-cent sales tax the Legislature approved last year to shore up deficit spending that, according to the Edwards administration, was left in the wake by Gov. Bobby Jindal. The one-cent sales tax is scheduled to roll off the books in 2018. Though the one-cent sales tax would disappear, the state’s existing sales tax — four pennies on the dollar — would be broadened to capture services as well as “activities” that currently are exempt from the state sales tax. Supposedly the sales tax change would result in the same amount of income for state government.
One of the primary arguments for levying a gross receipts tax on businesses centers on capturing the scores of businesses in Louisiana that currently pay no income tax to the state. There are roughly 200 of them. Many of them are insurance companies. They’re all able to duck paying state income taxes because they can claim “net operating losses” from prior years as well as the tax year they just completed.
According to the state, some 10,000 Louisiana taxpayers have $42.7 billion in net operating losses that they can carry forward to steer clear of paying income taxes.
It’s clear Edwards recognized that two of the key components a blue-ribbon panel recommended to reform the state’s tax structure would meet a quick death if lawmakers were forced to entertain them. One of them entailed eliminating the deduction that state income taxpayers can take for the amount of taxes they paid to the federal government. The blue-ribbon panel also recommended reducing the excess itemized deduction that state taxpayers can claim on their state income returns.
The two changes would have ginned up some $1 billion in new revenues for state government. But very wisely, it would seem Edwards won’t ask lawmakers to vote on what would be career-ending tax hikes.
While Edwards appears to have his sights set on altering the manner in which Louisiana taxes businesses, it’s an absolute certainty that conservatives in the state House of Representatives will oppose Edwards’ every move to raise more income for state government. It’s just the natural order of things in today’s toxic political environment.
Conservatives shouldn’t be faulted for opposing tax increases or any legislation that attempts to expand the size and scope of government. Yet, if conservatives in the House wish to be taken seriously and not recognized as simply anti-government and anti-tax advocates, they must develop a workable plan to reduce the tax load that working Louisianians currently shoulder while not decimating the services the state provides for the less fortunate. That’s a tall order.
For his part, Edwards could very easily silence his conservative critics — to some degree — if he tied his business tax change to a reduction in the income tax rates that individuals pay the state. Of course, the one-cent sales tax needs to go away, too.
If those changes don’t realize enough revenue to satisfy the governor’s proposed budget for the year ahead, he could always toy with levying an oil and gas processing tax. But Edwards won’t go there and he knows why he can’t.
And we do too.
Sam Hanna Jr. is publisher of The Ouachita Citizen, and he serves in an editorial/management capacity with The Concordia Sentinel and The Franklin Sun. He can be reached at firstname.lastname@example.org