Reduce bad surprises, stimulate growth by nixing corporate income tax

Because of the complexity of state government, the shortness of legislative sessions, and the culture of overregulation in Louisiana, at the end of any session a number of bills go forward that, simply, are great unknowns when it comes to their fiscal impact. A good example from this session is SB 259, and provides another reminder why the state should change drastically its corporate taxation laws.

This bill was designed to aid one firm to give it incentive to not transfer any or all of its operations elsewhere. But as the clock ticks to the end of the session later today, nobody is sure exactly just how many companies could claim this tax break. Worse, it might actually foist a higher tax bill on Louisiana-based firms. All that prevents its enacting would be a gubernatorial veto and Legislature failure to override, and its consequences still are not clear.

This rings typical of the confusing and confiscatory nature of Louisiana’s corporate tax code. Not only is its top rate the 15th highest of all states, but it also tacks on a “franchise tax” that taxes on the basis of the value of the firm (separate from property taxes, at the local level, paid on real property that in part makes up the value of the firm). Unlike all but one other state, part of this “value” includes debt. And then there are a dizzying variety of tax breaks for a multiplicity of purposes whose savings for corporations probably in part get eaten up by the cost of all the record-keeping to claim them (and does not include “special” taxes such as those upon forms of gambling).

SB 259 is just another one of these breaks. It would be so much simpler to get rid of Louisiana’s corporate taxation’s five levels, get rid of all the breaks, and just set a flat, low rate. Even better would be to get rid of a corporate income tax entirely; Nevada, Washington, and Wyoming do without any form of them entirely and are doing better than Louisiana economically. This reform would attract businesses, bureaucratic expenses to track everything for the state government would zoom downwards, and the effects of it (especially if at zero) would be easily predictable.

It’s not like eliminating corporate income taxation in Louisiana would be that big of a problem. For fiscal year 2003-04 its revenues constituted only about 5.75 percent of the general fund’s (little more than 2 percent of the total operating budget’s). The Revenue Estimating Conference “found” almost that $373 million in its last meeting last month. No doubt the boon of economic activity spawned by the elimination in short order would more than compensate for this forgone revenue.

But, of course, none of this was contemplated this session. Instead, by contrast, we get things like HB 795 which operates in reverse, granting the governor more leeway to establish more tax breaks. Most obnoxiously, it grants the governor the sole power to approve whether a corporation gets a break; there’s some good-old-girl behind-the-scenes preferment opportunities and horse-trading just waiting to happen under that arrangement.

It’s unlikely that the House will alter that provision in the next three hours, but one can hope. And to dream really big, maybe serious corporate income tax reform will occur during the next fiscal semi-only session two years from now, which may be two years too late.