All in all, the fiscal reform package Republican Gov. Jeff Landry will present to the Louisiana Legislature, at least in its broad outline, charts an improved course towards economic development but falls short in restraining big government.
This week, Landry announced that he would call a special session around election day in November that could last until just before Thanksgiving Day to commit fiscal reform. The worldview behind it shifts revenue from income to sales taxation. It essentially wouldn’t levy any individual income tax to single filers below $12,500 and joint filers below $25,000, and above those levels impose a flat three percent rate, with the possibility of additional deductions. Plus, senior citizens receive double that level. But in exchange, it would keep the 0.45 percent sales tax hike from 2018 and would expand that to potentially many of the 223 sales tax exemptions currently in law – but not to the constitutional provision that exempts unprepared food, drugs, and utilities. A separate sales tax exemption on business utilities also would be retained, although perhaps not entirely.
Additionally, corporate income tax rates would be made a flat rate and the franchise tax eliminated, which overall likely would end up as a net tax decrease for most. The three percent rate would reduce one of the highest in the country at its top level, and of the few states that have a franchise tax, Louisiana’s is the highest.
Most outstandingly, although perhaps requiring the most political heft to attain, the plan would axe likely the two most wasteful tax exemptions on the books, the Motion Picture Investors and the Quality Jobs credits, and smaller ones are up for discussion as well. The pair alone in 2023 cost over $270 million.
It’s quite encouraging, because the broad outline follows best practices in flattening rates wherever possible and gets rid of extremely inefficient and/or ineffective taxes and exceptions. It also reins in income taxation – which generally Landry would like zeroed out in what would be a second term – in favor of a consumption tax, an arrangement more likely to produce economic growth as this harbors the least bias against saving and investment and has lower administrative and compliance costs.
The plan’s skeleton considerably improves the state’s fiscal structure. Also likely to show up with it are changes to dedications and revenue fund usage, which in their current form often squirrel away relatively large sums that can be spent only on low-priority items while more important tasks are starved. That would make the overhaul a definitive home run.
The only thing that prevents it from becoming a grand slam is it hardly slims down government. Details will be forthcoming, but initial estimates are the keeping of higher sales taxes and broadening the base while cutting back on income tax collection and removing many exceptions related to that and excising the franchise tax achieves a net revenue loss of only about $100 million, which doesn’t do much to offset the hyper-inflation in state government spending under Landry’s predecessor.
Otherwise, if the details pan out, this becomes reform the state has been begging for not only for decades, but even well past a century. It’s worth having a special session soon over it.
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