Gov. Bobby Jindal says he wants to simplify Louisiana’s tax system by eliminating income taxes and ending tax exemptions that benefit what he calls “special interests.” But the governor’s plan would keep dozens of these loopholes.
State Rep. Jerome ‘Dee’ Richard
State Rep. Jerome “Dee” Richard wants to go Jindal one better. Richard is filing a bill to repeal all tax exemptions not embedded in the state constitution. This would free up a revenue stream that would have totaled up to $4.8 billion 2012. Richard, a member of the conservative legislative group who call themselves Fiscal Hawks, said he would use the increased tax revenue to lower income and sales taxes.
Jindal “has exemptions for some and not for others. That’s not fair,” said Richard, a political Independent from Thibodaux. ”The simplest way to do it is get rid of all the exemptions.”
Richard said he knows his proposal will face stiff resistance. But he calls it a fight worth waging as a way to highlight contradictions within Jindal’s scheme to eliminate state income taxes and instead raise sales taxes.
On Thursday night, Tim Barfield, executive counsel for the Revenue Department, said that the state sale tax increase had to be 2.25 percentage points, not 1.88 percent as previously announced, to raise enough revenue. Under either proposed increase, Louisiana would have the highest combined average state and local sales tax rate in the nation.*
Jindal’s proposal ran into serious trouble Wednesday when the powerful Louisiana Association of Business and Industry joined the ranks of tax-swap opponents. The problem, as explained by LABI’s president, Dan Juneau: The Jindal plan would raise taxes on businesses by at least $500 million per year.
“I haven’t heard a lot of entities come out in favor of the plan,” Juneau said in a follow-up phone interview Wednesday. “There doesn’t seem to be a groundswell of support for it.”
Barfield noted the $500 million cost to business on Tuesday, after The Lens and the Public Affairs Research Council, a Baton Rouge-based think tank, separately questioned Jindal’s contention that everyone would benefit under his revenue-neutral tax swap — a mathematical impossibility.
Jindal’s plan would raise sales taxes on individuals and businesses to offset the revenue lost from eliminating personal income and corporate taxes. Jindal says his plan would create jobs and attract new investment. The Pelican Institute for Public Policy, a libertarian-leaning group in New Orleans, released a study on Tuesday predicting benefits. On Wednesday, the Louisiana Oil & Gas Association said the Jindal administration had devised a plan that would benefit its members.
The House Democratic Caucus announced its opposition Wednesday, saying that the Jindal plan favors the wealthy. Opposition from the Democrats is not a surprise, but it is significant since Jindal has little margin for error. To reach the 70 votes needed in the House, he would have to pick up at least 10 of the 45 House Democrats, assuming only minimal Republican defections.
Legislators are starting to offer alternatives.
The Legislative Black Caucus, which includes 23 House members, all Democrats, proposes to reduce personal income and corporate tax rates by eliminating the deductibility of some federal income taxes and nearly all federal corporate tax deductions. Unlike Jindal’s plan, the Black Caucus’ proposal would not raise the state sales tax. Nor would it impose fresh sales taxes on some currently untaxed business activities or end some current exemptions, as Jindal’s plan does. It would raise the 36-cents-per-pack cigarette tax by 33 cents; Jindal would raise the cigarette tax by $1.05 to $1.41 per pack.
State Rep. Katrina Jackson, D-Monroe, who chairs the Black Caucus, said individuals and businesses overall would not pay more by swapping taxes under their plan. The only tax increase would come from increasing the cigarette levy, she said.
Any plan must first pass the House Ways and Means Committee, before going to the House floor and then to the Senate. On Tuesday, Ways and Means held its second hearing on the Jindal plan.
State Rep. Harold Ritchie, D-Franklinton, is proposing to end some exemptions and use the revenue to lower but not eliminate income taxes. Ritchie also wants to raise the cigarette tax by $1.05 per pack but use the money to offset some of Jindal’s cuts to health care for the poor.
“I don’t know that he [Jindal] has the support to pass the bill in committee,” said Ritchie, a Ways and Means member. “I know of several Republicans who say they don’t think they can vote for it. That sort of surprised me.”
The boldest plan comes from Richard, a 57-year-old, second-term House member who in his non-legislative job works for a construction firm.
Under Richard’s plan, the Legislature would eliminate all tax exemptions approved by lawmakers over the years, but would not attempt to touch any tax exemptions contained in the state Constitution. Richard would not raise cigarette taxes, the state sales tax or begin imposing sales taxes on engineering firms, accountants and dozens of other activities, as Jindal proposes. Richard said his plan also would be revenue-neutral.
According to the Department of Revenue, the state had 468 different exemptions on the books in 2011. The exemptions range from certain taxes on insurance companies to the Motion Picture Investor Tax Credit to taxes on business inventory.
Added together, the sales, income and excise tax exemptions cost the state $4.8 billion in tax revenue in 2012, reducing overall revenue to $6.7 billion.
Jindal proposes eliminating 76 different exemptions, including purchases at off-track betting parlors, sales and rentals to Boys State and Girls State of Louisiana and purchases of school buses by independent operators.
Jindal would retain dozens of other tax exemptions, including items purchased for breastfeeding, for helicopters leased for oil, gas or mining, and for pharmaceutical samples distributed in Louisiana.
“Let’s get them all on the table,” Richard said. “I’m looking for the simplest way to do it. Rather than picking on people, why not do all of them? I don’t know his thinking.”
Jindal’s press aides did not respond to a request Wednesday for an explanation from them or the governor.
Richard’s plan faces long odds because practically every tax exemption has a paid lobbyist or trade group (or both) who will play defense by arguing that lifting the tax break will eliminate jobs and investment.
“If you think Jindal’s plan has problems, Dee Richard would face even more opposition from people trying to hold onto the tax breaks they would still have under Jindal’s plan,” said John Maginnis, a veteran political commentator.
*This story was updated with new information from Barfield.