Louisiana could keep "significant" economic development tax breaks in some form even if the state scraps its personal income and corporate taxes, the official leading Gov. Bobby Jindal's tax overhaul told a powerful state business association Tuesday. And while the administration is looking at reducing sales tax exemptions as a way of bringing in new revenue without raising rates,...
Louisiana could keep "significant" economic development tax breaks in some form even if the state scraps its personal income and corporate taxes, the official leading Gov. Bobby Jindal's tax overhaul told a powerful state business association Tuesday. And while the administration is looking at reducing sales tax exemptions as a way of bringing in new revenue without raising rates, it does not plan to touch constitutional exemptions on basic needs and will not likely remove some breaks for businesses, Department of Revenue Executive Counsel Tim Barfield said.
Many other details of the plan, which was announced last week, are still being worked out, Barfield told the Louisiana Association of Business and Industry at the group's annual meeting. So far, most of the conversations have been about "which exemptions should be in and out," Barfield said. Other than some of the specific programs Barfield outlined, "everything else is on the table," he said.
Tim Barfield
Administration officials will be meeting with lawmakers and stakeholders in the coming months to work out the details. The full proposal will likely not be available until shortly before the session begins on April 8, Barfield said.
During his presentation, Barfield called for a tax system that "doesn't pick winners and losers," referring to the 468 exemptions spread throughout the state's tax system. However, he said "significant incentive programs" would remain in place, possibly by replacing corporate tax credits with offsets for a different tax or by replacing them with direct payments to companies.
Three exemptions to the sales tax were enshrined in the state Constitution in 2002: groceries, residential utilities and medicine. Together, those exemptions account for about $700 million of the $2.5 billion in sales tax exemptions that are on the books.
Administration officials have said they will not try to alter those constitutional exemptions.
Sales tax exemptions for machinery and for business-to-business sales will be kept in place, Barfield said. Other exemptions are being studied in consultation with those affected by the exemptions, said Barfield, who noted that some exemptions are so specific that officials are not sure what the effect of eliminating them would be. "There's a lot of exemptions we don't fully understand," he said.
While the broad outlines of the plan became public last week, there are few details on exactly how Jindal's proposal would play out. The administration has said its goal is to eliminate personal income, corporate income and franchise fees and use sales taxes to replace the lost revenue. Officials have said the plan will likely include an increase of the state sales tax rate -- now 4 percent -- the elimination of some exemptions and a broadening of the types of purchases on which the sales tax is collected.
The plan will be designed to bring in the same amount of money as the state currently collects, officials said. Regular sales taxes now bring in about $2.6 billion in state revenue and another $322 million comes from a motor vehicle sales tax. The taxes on the chopping block bring in roughly $2.9 billion.
Barfield promoted the swap Tuesday as a way of making the state more attractive to businesses and residents, and providing a source of revenue that more closely tracks the state of the economy. Income taxes can grow more quickly than the economy as a whole, while sales taxes more accurately track the health of the economy, he said.
"Do we really want state revenues to grow faster than our economy?" Barfield asked.
The focus on stable revenues comes on the same day that a preliminary report from the Public Affairs Research Council in Baton Rouge suggested that the switch to sales taxes could destabilize government revenues. The report, by the organization's Tax Policy Group, also noted that the plan could hurt retirees whose Social Security checks are now exempt from state income taxes, increase the tax burden on low-income residents and leave the state at a competitive disadvantage for consumers who could go to other states or shop online.
The report also says that the tax plan could kick off aggressive lobbying by groups looking for special treatment for their programs.
The final plan will involve some sort of rebate for low-income residents to minimize the way it affects them, Barfield said. While the Jindal administration has previously opposed taxing Internet sales, Barfield said the state is anticipating that federal legislation could provide an avenue for ensuring online purchases are taxed.
During the speech and in conversations with reporters afterward, Barfield discussed comments made by his office on Friday suggesting that state taxes on natural resource extraction could be eliminated as part of the final plan. Barfield said there were no "serious discussions" about getting rid of the taxes, known as severance taxes, but that they remained "on the table" and that the administration was willing to consider proposal. He also reiterated that the administration does not plan to impose a state property tax.
Rep. Joel Robideaux, R-Lafayette, pitched his own proposals for altering the state's tax incentive programs as a member of Tuesday's panel at LABI. Robideaux, who heads the Revenue Study Commission, suggested on Tuesday that lawmakers and staff should have a full year to study new incentives before they are brought to a vote and that the programs should be brought back up for debate if they exceed estimates.
Robideaux, who also chairs the House Ways and Means Committee, proposed that lawmakers be required to file bills dealing with new incentive programs a year ahead of time, so that legislative staff could estimate their effect outside of the busy legislative session.
In addition, incentive programs that exceeded their estimates by some amount should be brought back for another vote, Robideaux said. Those incentives wouldn't be eliminated automatically, but bringing them back before the Legislature would give lawmakers a chance to determine whether their benefits still outweighed their costs, he said. "It would make sense if there were some trigger mechanism," Robideaux said.