House GOP bending, not yet breaking, on tax hikes

Yesterday Louisianans dodged a potential tax increase, despite the attempt of an overeager Republican lawmaker to put a fig leaf of respectability on it, but remain in the woods on the issue.

HB 11 by state Rep. Rob Shadoin, a backer of Democrat Gov. John Bel Edwards in last year’s elections, with this bill carried Edwards’ desire to raise revenue by limiting deductibility on individual state income taxes federal income tax deductions in excess of the standard. When fully ramped up in future years, this would separate from individual taxpayers an extra more than $132 million annually.

This garnered skepticism from Republicans on the House Ways and Means Committee who, if not wanting to see anybody’s taxes go up after about $2 billion worth of hikes over the past 12 months, at least wanted revenue neutrality as part of larger tax simplification. This means that in the near term any tax code adjustments would not change revenue flows coming into state government, although the simpler code over a few years would create greater incentives for economic development that would bring higher revenues stemming from the economic growth it triggered than without the change.

In its form of a straight-up tax hike, the committee of 12 Republicans and 7 Democrats but with one of the latter its chairman state Rep. Neil Abramson sympathetic to GOP views on the issue indicated the bill never would pass. However, then one of its GOP members state Rep. Julie Stokes, a self-styled tax reformer, decided to ride to its rescue by proposing linking it to a raft of bills she had out and about that generally would remove exceptions for a flat individual income tax rate. At first, she claimed absorption of HB 11 into her package could render it part of a revenue-neutral attempt to simplify the tax code.

But she also noted the attempt would come with the acquiescence of Edwards, who has made no bones about wanting tax code changes to increase revenues now to fill out a budget he says falls $450 million of his desired spending levels. And under sharp questioning from Republican state Rep. Jay Morris, with Stokes unusually sitting at the witness table, any pretense of a revenue-neutral intent of the bill in this amended form fell apart.

Among other things, Stokes admitted the rate she set originally in HB 17, 3.95 percent, would not provide neutrality; that would take a rate no higher than 3.8 percent and would have to go lower still if tying in HB 11. Also, that and her other bill HB 33 rested on the contingency of passing HB 7, a constitutional amendment getting rid of tax exceptions written into the document, but adding in HB 11 would not; in other words, if the amendment failed, while the other two bills would not go into effect, HB 11 would minus corresponding relief elsewhere to ensure neutrality. Indeed, Shadoin objected to an amendment that would have definitively linked his to the amendment’s fate at the hands of the electorate and did not pledge to work against removal of the amendment on the floor if attached to his bill, even if he still would want to move the amended bill.

Yet most tellingly, Stokes conceded she did not want the combination of bills to attain revenue neutrality in the near term because, like Edwards and Shadoin, she wanted to find additional funding to retain larger government without seeming to give consideration to any spending adjustments, as a price for reform. Morris also got her to concede that the vagaries of floor amendments, Senate action, and Edwards’ veto choices could make the enhanced stable of bills, constitutional amending aside, not revenue neutral even if desired.

All in all, this maneuver did not constitute a promise of revenue neutrality, not only because of the intents of Shadoin and Stokes that bucked the general attitudes of their constituents and party, but also because of the vast number of contingencies involved. Stokes subsequently averred the obvious, that her efforts had the backing of Edwards with the possibility of buying his support for her other measures – another indicator that the final product of all of this never would take a revenue-neutral form.

The amendment won adoption with Stokes and GOP state Reps. Chris Broadwater, Steven Dwight, Barry Ivey, and Tom Wilmott voting for it, joining all Democrats voting for it without Abramson, following the norm that a chairman votes only in the case of a tie. Yet when it came to the entire bill, Ivey and Wilmott joined their fellow Republicans in opposition, created a tie at 9. Abramson then cast the deciding vote against.

However, the fight may continue. The entire House could yank a bill defeated in committee through a simple majority. Big government Republicans predisposed to support Edwards other than Broadwater, Dwight, Shadoin, and Stokes, such as state Reps. Bryan Adams, Bubba Chaney, Patrick Connick, Chris Hazel, Joe Lopinto, and Rogers Pope would deliver with Democrats more than enough votes not only to get it onto the floor but also passed (given the interpretation that this does not “repeal” a tax exemption in its entirety, in order to dodge the Constitution’s two-thirds majority approval requirement.)

Stokes did subsequently have HB 17 amended to set the rate at 3.8 percent, saying it would make her original package revenue-neutral, but that would not ameliorate the impact of HB 11 if it got out. Her bill in a sense goes beyond HB 11 in that instead of limiting that deduction hers eliminates it, but only filtered by marginal rate reductions offsetting its impact and that of other deductions. That approach remains sound, unlike her attempt to play footsie with Edwards; does she seriously think that, if presenting him with the package, that after his bluster on desiring tax reform he would veto these when they do not affect the state’s revenue picture at present? She never needed to cozy up to him to get all of it through.

This illustrates the danger when somebody like Stokes, eager to pursue her idea of reform and perhaps to enjoy the positive publicity that could come from succeeding in its adoption, becomes so caught up by it that she will accept bad public policy in return. Today the House will take up her measures, and by passing them in their current forms makes them less able for use as vehicles to leverage tax hikes. Hopefully she and the other Republicans who have indicated collaborationist sentiments regarding Edwards won’t let bills like HB 11 or alterations to hers facilitate net raising of taxes.