Voters in Louisiana’s Nov. 13 election will be deciding whether to back two constitutional changes that would heavily rewrite state sales and income tax laws to more closely match the regulations of other states.
The tax amendments were pushed by the Louisiana Legislature’s Republican leaders, backed by overwhelming bipartisan votes in the House and Senate and supported by Democratic Gov. John Bel Edwards, who called the proposals “real fiscal reform for the state.”
But the two measures have provoked strong disagreement among others as early voting is underway.
Constitutional Amendment 1 would start the centralization of the state’s sales tax collections through an eight-member commission, rather than through more than 50 local government agencies ranging from sheriffs to school boards.
The change is a long-sought goal of business organizations that argue the current system is too complicated and expensive for companies to remit the taxes they collect. Details of how the commission works, however, still would have to be hammered out by lawmakers.
Supporters say Louisiana is one of only three states with a fragmented system.
“A cooperative, statewide electronic tax filing system for businesses would drastically simplify this process and make the State of Louisiana much more business-friendly,” the Baton Rouge Area Chamber said in a statement.
Some local government officials don’t want to give up the collection authority. Calling it a “state power grab,” New Orleans Mayor LaToya Cantrell suggests the commission could withhold sales taxes owed to municipalities when state officials are unhappy with local decisions.
“We cannot afford to let politicians who have no ties to New Orleans make decisions that affect our future without our input or guidance,” the mayor said in a campaign email.
Local government associations would get four seats on the commission. The revenue department, the governor, the House speaker and the Senate president would appoint the other four members.
For Constitutional Amendment 2, the one-sentence ballot language suggests voters are making a decision purely about whether to cut taxes. But the amendment involves a tax tradeoff that won’t lower everyone’s taxes.
A multibill package tied to the amendment would get rid of personal income tax and corporate tax deductions for federal income taxes paid in exchange for lowering income tax rates. Louisiana also would eliminate the corporate franchise tax for small businesses, lower the rate for others and do away with most excess itemized deductions taken by middle- and upper-income earners.
Under the current system, when federal income taxes go up, Louisiana collects less in state taxes. When federal income taxes go down, state tax collections rise. That leaves Louisiana out of control of its own tax collections — one of only a few states with such ties.
“This is an effort to improve our tax structure and make it less complicated than it needs to be,” the nonpartisan Council for A Better Louisiana said.
The Legislature’s chief economist, Greg Albrecht, said most individual income taxpayers who don’t itemize would see a tax cut, while those who itemize likely would pay more. On the business side, Albrecht’s study estimated fewer than 2% of those who file corporate taxes would see tax bills rise.
Opponents criticize the tax package as more generous to corporations and the rich. The left-leaning Louisiana Budget Project, which advocates for low- to moderate-income people, also objects to triggers in the package that would lower tax rates in later years if Louisiana hits certain revenue growth, rather than allowing the state to spend that money on services.
“It just doesn’t meet the test of reform,” Jan Moller, head of the organization, said in an online discussion about the amendments.
In exchange for losing the tax break for federal taxes paid, taxpayers would receive a 1.85% personal income tax rate on the first $12,500 of net income, down from 2%. The tax rate for the next $37,500 of income would fall from 4% to 3.5%, and the rate for income above $50,000 would drop from 6% to 4.25%.
Lawmakers wouldn’t ever be able to raise personal income tax rates above 4.75% without getting voter approval.
On the corporate side, the proposal would scrap rates that range from 4% to 8% and companies would lose the ability to deduct federal taxes paid from their state taxes. In exchange, companies would see a 3.5% tax rate on the first $50,000 of earnings; 5.5% on earnings above $50,000 and up to $150,000; and 7.5% on earnings above $150,000.