When state lawmakers convene the regular legislative session beginning Monday, the budget, as always, will be the center of attention. This year, however, how the Legislature gins up the money to fund the budget has the potential to turn a routine session into a good old fashioned bar brawl.
Last week, Gov. John Bel Edwards unveiled a far-reaching plan to raise taxes including a couple of proposals that could gut the small business community as well as individuals who work for a living.
The focal point of Edwards’ plan is a new “Commercial Activity Tax” for corporations. It’s billed as a modified gross receipts tax, or a tax on a corporation’s gross revenues. Supposedly corporations with less than $1.5 million in gross revenues would be exempt from the new tax. Some insurance companies and some financial institutions would be exempt from the new tax as well, which raises a whole host of questions about which insurance companies and which financial institutions are so special that the governor would see fit to give them a pass on paying the new tax.
As it stands now, the “Commercial Activity Tax” is dead on arrival in the Legislature. That could change, of course, but don’t bank on it, especially if the tax would be levied regardless if a corporation showed a profit.
Can you imagine a small business with $1.6 million in gross revenues annually being required to pay a gross receipts tax if the corporation lost money for the year?
While the idea of levying some version of a gross receipts tax is relatively new in Louisiana, eliminating the federal income tax deduction that individuals and corporations currently are allowed to claim on their state income tax returns is not new. It’s a relic of the Stelly Plan days. It’s also a fan favorite among big government liberals, who seemingly operate under the notion that men and women who work for a living as well as Louisiana corporations don’t pay enough income tax to the state.
Edwards’ plan includes eliminating the deduction.
On the surface, eliminating the federal deduction would generate anywhere from $750 million to $1 billion in new revenues for state government. It would solve the state’s budget problems over the long haul, but it also would financially cripple scores of working men and working women in Louisiana who are struggling to make ends meet in an economy that’s lackluster at best.
Edwards would be wise to abandon the idea of eliminating the federal deduction. If it somehow became law and the people of this state found themselves on the hook for hundreds of millions of dollars in new taxes, the governor would put his re-election in serious jeopardy.
There are other aspects of the Edwards tax plan including levying the state sales tax on some services as well as phasing out the corporate franchise tax over a 10-year period. Eliminating or reducing some tax credits and other incentives are in the mix, too.
The Edwards plan also calls for eliminating the “temporary” one-cent sales tax the Legislature approved last year to help balance the budget. The temporary penny tax already is scheduled to roll off the books in 2018.
Other tax reductions under Edwards’ plan include lowering individual income tax rates and corporate income tax rates. In light of the governor’s proposal to eliminate the federal income tax deduction, lowering income tax rates would pale in comparison to the pain individuals and businesses would feel if they lost the federal deduction. Simply put, lowering income tax rates is a joke if working people are forced to give up the one deduction that actually saves money on state income returns.
Edwards should be commended for putting together such an ambitious plan to raise revenues for state government. The only thing standing between him and getting it all passed are state lawmakers who recognize the people of Louisiana can’t afford it.
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 samhannajr@samhannajr.com
