LA needs both fiscal reform and right-sized govt

The decoupling of Louisiana’s fiscal year 2026 budget and tax reform seems to have arrived, reinforcing the idea that the latter isn’t a panacea for the former.

Off-and-on discussions about whether the Legislature should conduct a special session dedicated to tax reform soon, or at least before year’s end, have foundered absent an appetite of legislators to tackle the weighty issue relatively soon. Ideally, by having a session next month any constitutional changes necessary could head for voter approval in the scheduled Dec. 7 election that then would guide budgeting during next year.

But legislative leaders detected that legislators didn’t feel a rush to make changes would work effectively. Nor did Republican Gov. Jeff Landry, who could call a session on his own, perceive legislators as ready to embark in that direction. Fiscal reform has drawn plenty of attention over the decades so ideas on how to proceed aren’t new, but the feeling is that if amending the Constitution has to happen, given the experiences particularly since 1990 — failure by Republican former Gov. Buddy Roemer at the ballot box, success on less dramatic shuffling by GOP former Gov. Mike Foster — that lawmakers will get just one shot at it and it has to be right to convince voters.

Since even before Landry’s inauguration, a hope existed that reforms could come into being in time to ameliorate the expiration of a temporary boost in sales tax rates launched in 2016 as well as to reduce some other tax exceptions, with the sales tax hike which was renewed at a slightly lower rate in 2018 set to expire Jun. 30, 2025. This will sap general fund revenues initially to the tune of at least $500 million.

Yet, at the same time reform carried with it an expectation of revenue neutrality at worst, more tax relief at best. Ultimately, it should create a tax structure that encourages economic growth so that efficiency produces higher revenues without overall higher rates, although some groups may pay more or less than previously.

This, however, is a long term process that wouldn’t provide much in immediate relief. Moreover, almost certainly this would require voter approval of some components that could not happen prior to FY 2026, and especially important step as the constitutional protections limiting sales tax collections that might need changing cost in FY 2025 $2 billion all told. It would be just about impossible to accomplish comprehensive and meaningful tax reform without changing by amendment these sales tax exemptions on food prepared in the home, drugs, and utilities or on gasoline.

Additionally, the Constitution channels spending in certain ways that also would need alteration. Either way, that means holding an election by the end of the year, which won’t happen, and if the effort is holistic that would postpone as well changes that could occur by statute prior to the middle of next year when the new fiscal year commences.

So, this compels budgeting for FY 2026 that reduces spending. And, in the long run, shedding low priority or needless spending is best attained when there’s no safety net of higher revenues that reduces the resolve to cut. Thus, the delinking increases the chances of lopping off spending either with little value or of sufficient value but unaffordable at this time. Going on a diet to live within means, knowing that the higher level of consumption down the line threatens overall (in this case, economic) health, works with both humans and governments.

As well, this approach sharpens the focus on tax exceptions also of little value that could be reduced or jettisoned. Does Louisiana really need a motion picture tax credit so mainly nonresidents can make more and bigger movies that disgorges up to $150 million a year that returns at most a quarter on the dollar? Or an earned income tax credit of over $60 million annually that discourages more productive work?

The momentum for tax reform must continue. But it shouldn’t confuse the issue of right-sizing Louisiana’s government, which grew much faster than the rate of inflation during the terms of immediate past governor Democrat John Bel Edwards, starting next year.