Lawmakers responded with caution Friday to Gov. Bobby Jindal’s proposal to eliminate Louisiana’s income tax in exchange for higher sales taxes and other tax code changes, saying they needed more specifics about the idea.
They questioned how it will affect low- to middle-income families and whether sales taxes are too unstable a revenue source on which to base the state’s budget.
“I’m not for it or against it right now. I think that there are some promising concepts here, but we’re still talking about concepts. I’m not going to be anywhere until I see the specific language,” said Rep. Chris Broadwater, R-Hammond, a member of the House Ways and Means Committee, the tax-writing panel.
Jindal is floating the idea of a tax swap in advance of the legislative session that begins in April.
The tax code rewrite faces high hurdles for passage, with any increases requiring a two-thirds vote. That would mean the governor would have to rally nearly all GOP lawmakers and pick up a sizable number of Democrats.
The Republican governor’s proposal, conceptually unveiled to top lawmakers this week, would get rid of personal income taxes and corporate income and franchise taxes in exchange for a higher state sales tax, the removal of some tax breaks and a possible increase in tobacco taxes.
The details haven’t been fleshed out, including how high he’ll push to raise the state sales tax from its current 4 percent rate and which tax breaks he’ll propose to eliminate to offset the nearly $3 billion lost by eliminating income taxes. Jindal has said he wants any tax code rewrite to be “revenue neutral.”
Rep. Mike Danahay, also on the Ways and Means Committee, said removing income taxes seems attractive on the surface, but he said it would appear to most benefit wealthy residents and businesses, raising concerns about the burden on low- to middle-income families.
“I’m not totally sold. I want to see numbers. If the burden falls too much on the low- to middle-income families, I could not support that,” said Danahay, D-Sulphur, a conservative who often votes with Jindal.
That concern was repeated by other lawmakers who worried a sales tax hike — in a state with one of the highest combined local and state sale tax rates in the nation — would fall disproportionately harder on the poor, because sales taxes take a larger slice of their earnings.
“Sales taxes are a regressive tax, and the poor are negatively impacted when you increase sales taxes,” said Rep. Patricia Smith, D-Baton Rouge, chairwoman of the Louisiana Legislative Black Caucus.
Everyone pays the sales tax, but not state income tax, which has steps where a larger percentage of income is paid in taxes the more a person or household earns. Low earners don’t pay any income taxes at all.
Jindal’s point person on the tax code revamp, Tim Barfield, said the Jindal administration is looking for ways to lessen the blow of any sales tax increases to low-income taxpayers. He said the governor wants to keep current state sales tax exemptions on food for home consumption, prescription drugs and residential utilities and is looking for ways, possibly a tax rebate, to help low-income workers.
Both Smith and Danahay said they worried that the sales tax is too unstable to be the primary revenue source for the state, because it depends on people buying things.
“Sales tax is more volatile. It ebbs and flows with the economy. Is it a stable source of taxation to protect the services we provide?” Danahay said.
Broadwater said the state already is losing sales tax revenue because of online retailers that aren’t tallying and remitting to Louisiana the sales taxes for what people buy on the Internet, and he said he would question a plan that relies too heavily on sales tax as the primary source of state income.