A 43-page primer written by the Jindal administration on Louisiana’s state tax structure suggests a recipe for improving the perception of the state’s business climate.
The recipe calls for reducing the number of tax brackets and exemptions, while avoiding a net increase in tax revenue. In essence, it is a swap: Shed exemptions in exchange for adopting lower tax rates, freeing taxpayers from the complicated task of finding ways to lower their tax bills.
The primer focuses on a weighty topic that likely will consume the attention of Gov. Bobby Jindal and his staff in the months leading up to next year’s legislative session.
The governor made education his primary push during this year’s 2012 legislative session. During the 2013 session, he wants the theme to be a comprehensive review of the state’s tax code. As the governor told supporters in August, he wants to “make Louisiana’s tax code fairer, flatter and lower for Louisiana families and businesses.”
Exactly what that means has been unclear. Legislators say they have no idea what is under consideration. Neither Jindal administration officials nor the primer offered specific details.
The primer was written by the staffs of the state Department of Economic Development and the state Department of Revenue.
DED Secretary Stephen Moret and Tim Barfield, executive counsel for Revenue, refused to outline what legislative options are on the table for the upcoming 2013 session of the Louisiana Legislature, which convenes April 8.
Moret said the Jindal administration is looking at reducing the number of income tax brackets and rates, benefitting families as well as businesses. The goal, he said, is to simplify the state’s tax structure to convey that Louisiana is a low tax state.
“We have some broad goals in mind,” Barfield said. “We have a good understanding of what a simpler, flatter tax system is.”
He said the details still are being developed.
After reading the primer, state Rep. Sam Jones said he fears the governor will try to help the wealthy by lowering tax rates while hurting people with modest incomes by eliminating tax exemptions on groceries, medicine and utilities in order to keep his proposals budget neutral.
“It’s just really a smackdown on the middle class, and I certainly would be opposed to that kind of logic,” said Jones, D-Franklin.
Senate President John Alario, R-Westwego and a tax preparer by profession, said he hopes the administration makes the state tax process simpler.
He said the state income tax return has twice as many pages as the federal income tax return.
Legislators, through the Revenue Study Commission, are at work on reviewing the hundreds of tax exclusions, suspensions, deductions, credits, refunds, rebates and preferential tax calculation methods that diverted $6.9 billion in state revenue last fiscal year. Their study is independent of the governor, and possibly could result in proposals that clash with his ideals.
Jindal made it clear that he is not in favor of eradicating tax exemptions simply because they drain revenue at a time in which the state is struggling to pay its bills.
State Sen. Dan Claitor, R-Baton Rouge and a commission member, said the governor has not spoken to him about possible tax system proposals.
However, Claitor said, some incentives may need to be purged simply because they no longer make sense.
“Some of the incentives are obsolete. I don’t think we have any incentives for buggy whips, but some of them are not far off,” he said.
Tim Barfield, executive counsel for the state Department of Revenue, said the study commission is a good exercise for legislators.
“It’s important all of us understand what’s out there. All in all, I look at it and I say that the commission is providing a lot of background information ... I certainly don’t think it’s a waste of time,” he said.
State Economic Development Secretary Stephen Moret said the primer that the Jindal administration produced is intended to be an educational reference for legislators, media and the general public. He said it is the result of two months of work aimed at clearing up misperceptions and confusion about the state’s tax structure.
The biggest misperception, Moret said, is that legislators would not be raising taxes by eliminating exemptions. He said families rely on those exemptions and getting rid of them without proposing an offset would be a tax increase.
“Ultimately, we think that tax reform is an opportunity to move toward a tax code that’s fairer, flatter and lower,” Moret said.
He said changes could be made to tax brackets, complexity, marginal tax rates and exemptions without hurting economic development incentive programs or impacting the state operating budget.
Neither Moret nor Barfield would outline what specific changes might be made, if any, to the state’s individual income tax system. Currently, people with high income are taxed at a higher percentage than people with low income.
A true flat tax — a topic that’s arisen in the presidential race — is a single tax rate with the size of the taxpayer’s family determining the only allowed tax break. Money is taxed once, eliminating taxes on interest, capital gains and dividends.
The primer characterizes an ideal tax system as including “a broad tax base, a single low rate for each tax type, multiple revenue sources, and few exemptions, resulting in a simple, transparent system.”
The document also points to a number of problems with Louisiana’s current tax system.
The problems cited include:
- The number of corporate state income tax brackets which group income into ranges to apply different taxing rates, exceeds the norm.
- Louisiana has the highest average local sales tax rate in the country.
- A complicated tax system that relies on applying exemptions to lower the state tax burden.
- A more competitive tax environment in Texas than in Louisiana for individuals with very high incomes who make companies’ site-location decisions.
Moret said Louisiana’s complex tax system hurts the state in economic development. As an example, he cited the state’s business inventory tax, for which a 100 percent tax credit is available. Many businesses see that Louisiana has the tax, do not research further to discover the tax credit and write off the state, he said.
Barfield, who worked in the private sector before joining the Jindal administration, said complexity costs businesses money because they have to pay someone to navigate the state’s tax system.
“It’s not just the system is complex,” he said. “It’s that there is a real cost to that complexity.”
Barfield said the Jindal administration should have a good idea by the end of the year of which proposals will be pushed. He said the administration then will start talking to legislators on an issue-by-issue basis.
“Our focus is on making our tax system simpler and more competitive for all families and businesses in Louisiana,” Moret said.