(The Center Square) — Louisiana’s Republican-majority Legislature wants to cut taxes, but Democrats are clamoring to fix the state’s fiscal cliff first as legislators face a multi-year revenue shortfall.
The Public Affairs Research Council held a webinar on Aug. 30 to discuss tax reform ahead of a year with an expected $300 million deficit amid expiring temporary sales tax.
The combined sales tax rate in Louisiana is the highest in the country with an average of 9.56%. Even with the 0.45% temporary rate expected to expire in July, local sales tax rates would still average 5.1%. Despite the high rates, the 0.45% is expected to account for a $550 million-plus revenue loss next year.
Sen. Beth Mizell, R-St. Tammany, said if centralizing sales tax collection would move the needle, she would support it.
New Revenue Secretary Richard Nelson said he doesn’t see that impacting revenue, but was in support of streamlining another issue – income tax.
The current tax brackets, which range from 1.85% for the lowest earners to 4.25% for anyone making more than $50,000 annually, would be consolidated to a flat rate no higher than 3.5%.
In addition to a lower flat rate income tax, Nelson proposed removing constitutional exemptions for state sales taxes on food bought for home preparation, residential utilities and prescription medicines. A new tax on digital products, including streaming television services, should also be considered according to Nelson.
The revenue secretary wants to lower taxes but collect them more effortlessly by consolidating tax collections. This also means getting rid of deductions and exemptions.
Rep. Julie Emerson, R-Lafayette, said she wants the state to “making tax structure more streamlined by broadening the tax base and in turn hopefully lowering the rates for everyone.”
The ideas received pushback from Rep. Matthew Willard, D-Orleans, who reminded everyone that bringing down the budget deficit should be the top priority.
“I don’t think Louisiana is in a position to cut right now,” Rep. Willard said.
Willard also said he would not support getting rid of current sales tax exemption on food, drugs and residential utilities.
Nelson argued that the new system shouldn’t favor one specific thing and should have a collective effect and that hurts and helps everyone equally.
“I think that’s where a lot of tax changes have failed in the past is they focus on one exemption or they focused on one program and they haven’t looked at the cascading effects of that and as a result its gone nowhere,” Nelson said.
Legislators and experts agreed something should be done and a special session could be in play this fall or early next year. Legislators also concur that everything should be on the table such as a gas tax increase, cutting tax credits and even tax increases on wealthier services like dog grooming or landscaping.
Nelson said if done right, Louisiana should be in a position to fix tax rates and budget shortfalls.
“Mississippi River, oil and gas, tourism, all these other things that really any other state or any other country would kill for, Louisiana has all of them,” Nelson said. “But we’ve had really bad policy for a very long time, and until we fix that, we’re going to continue to see what we’ve seen.”