Louisiana has for many years fallen near or at the bottom of studies ranking the states’ fiscal health. In response, the nonprofit free market Pelican Institute launched its first comprehensive tax reform proposal of 2019, called Jobs and Opportunity Agenda for Louisiana.
"Rarely does a month go by without Louisiana receiving recognition for its inability to retain quality jobs and opportunity for its citizens," Daniel Erspamer, CEO of the Pelican Institute, said. "As tens of thousands of Louisianans continue departing the state for friendlier neighbors, businesses and working families in Louisiana need tax reform now. Leveling the playing field for everyone contributing tax dollars would jump-start the state’s economy, lead to better quality of jobs and save Louisianans more of their hard-earned money."
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Chris Jacobs, senior fellow at the Pelican Institute and author of the report, identifies several key areas in need of abolishment or reform within the state’s patchwork of tax provisions.
Taxes on capital and inventory penalize manufacturing firms with large holdings, Jacobs notes, and numerous targeted tax breaks associated with individual and corporate income taxes essentially penalize middle-class families and small businesses "who do not have lobbyists to advocate on their behalf."
While individuals and corporations have benefited from federal tax reform, Stephen Waguespack, president and CEO of LABI, told Watchdog.org, "the national picture helps mask critical problems here at home.
"At the federal level, taxes and regulations were slashed, and the market responded in a positive way. The opposite seems to be happening in Louisiana. The state’s unpredictable tax climate has negatively impacted manufacturers, service companies and inventory-dependent businesses of all sizes."
The state’s structure and complexity of the tax code is one of the key reasons why companies and individuals are leaving the state, the Pelican Institute reports, citing recent U.S. Census data of nearly 28,000 more people leaving Louisiana in the last year than moving to it.
Two sources of the state's tax complexity are created by the state Legislature and constitution, Jacobs said. First, the Legislature keeps increasing taxes; second, the constitution penalizes the state every time the federal government reduces taxes. In the past 12 months, the Legislature extended for the next seven years an expiring state sales tax by nearly half a penny, and state taxes were automatically increased because of federal tax reform.
Louisiana is one of only three states that allows for a full deduction of federal taxes paid, meaning state taxes are raised every time Congress allows the state to keep more of its own revenue through a federal tax cut.
"Policy-makers should eliminate this scenario by repealing the deduction for federal taxes in the state Constitution, and use the savings to fund lower tax rates overall," the report states.
The institute proposes a flatter, simpler income tax structure that eliminates both taxes and tax deductions, arguing the deductions would not be needed if the overall tax rates were lowered. Instead, it proposes lowering tax brackets to remove thousands of residents from liability, eliminating the federal tax deduction from the state Constitution, eliminating excessive itemized deductions used by a small percentage of tax filers, and eliminating other tax breaks like refundable tax credits or the historic preservation credit.
It also recommends that the Legislature repeal franchise taxes, inventory taxes and inventory tax credits, as well as job "incentive" programs. It suggests that the corporate income tax be eliminated entirely, or significantly reduced, and that rebates, deductions, and credits (both refundable and non-refundable) existing in the corporate tax code also be eliminated.
For every dollar the state could collect in personal income taxes, over 40 cents of it goes toward targeted tax relief, refundable tax credits and other provisions. The corporate income tax has an even higher exemption rate, at 86.3 percent, the report states. Because more than five in six dollars theoretically subjected to the corporate tax receive some type of targeted credit, corporate tax rates must remain higher than otherwise needed to generate the same amount of revenue, Jacobs said.
"If lawmakers decided to eliminate all these exemptions and credits, they could lower tax rates by roughly 40 percent, and yet still collect the same amount of revenue," Jacobs said. By simplifying the tax code and making it easier for businesses to grow, lawmakers could collect even more revenue by broadening the base and lowering rates, he added.
The institute's proposal went through more than 20 different iterations and "much review and vetting by both nationally recognized policy and local tax experts," Erspamer told Watchdog.org. "We are hopeful legislators will consider implementing the reforms package we've developed, and more importantly, we encourage all Louisianans to ask their legislators and those running for office if they support it."
The state chapter of the National Federation of Independent Business also announced this month that it will push for a state constitutional amendment to create a single state sales tax collecting entity, in an effort to streamline the tax structure.
"Tax reform can spark an economic revolution in Louisiana—if lawmakers take the initiative to act," Jacobs adds.