To cut, or to tax? Perhaps both?
These are the questions that face Gov. John Bel Edwards and the Louisiana Legislature, with Edwards making his position clear - tax reform is on the plate.
Reformation of Louisiana’s abysmal tax code is a novel goal - the Bayou State ranks 50th (truly, below 50) in the nation regarding the tax codes ... “friendliness” toward business.
As such, a constitutional convention has been brought up several times to not only fix the tax code, but remove some legally required state funds from the budget, opening up the general fund to help with certain issues - the $13 billion DOTD backlog not withstanding.
Unfortunately, Edwards seeks to change the tax code through a legislative session and increase the burden on business. After increasing sales tax by one cent in 2016 - which further convoluted Louisiana’s tax structure - Edwards is looking to move the burden to larger businesses with a gross receipts tax for those collecting $1.5 million or more, and a phase-out of corporate tax incentives.
What do those things mean, generally?
Well, a gross receipts tax acts as a regular expense. More often than not, businesses are taxed on their profit margin - or revenues, minus expenses. If the remaining number is positive, it gets taxed to a certain degree, and if its negative well ... the company needs to make some changes, in most cases. For a gross receipts tax, revenue is taxed with no regard for expense.
All of this is a tough pill to swallow for businesses with razor-thin margins: retail, grocers, restaurants, some service industries ... most anything these days.
Exceptions being some of those large, industrial corporations that have moved into Louisiana to take advantage of the corporate tax incentives.
Thus enters the phrase that Edwards and many of his like are using - “fair share.”
According to Edwards, many of these larger businesses aren’t paying their “fair share” of corporate income taxes because they are taking advantage of the incentives provided by the state.
That situation is actually a Catch-22, because those larger companies chose to locate here due to those incentives, and employ a huge number of Louisiana’s citizens. Do we risk them cutting staff to account for the increased taxes? Do we hope that those businesses which planned to invest here don’t pull out because suddenly the game has changed?
These tax changes come on the back of a proposed increase in the gas tax, as well. Make no mistake, Louisiana sits near the bottom in gas tax across the nation, and probably needs an increase to keep up with infrastructure funding demands.
The problem? Proponents, after a suggestion from several task forces (one appointed by the governor), are seeking to double the gas tax to try and raise $700 million a year to try and address the $13 billion DOTD backlog.
It should be noted that the $13 billion is maintenance alone, it does not include new projects (which total, roughly, $16 billion).
What does that represent? A mismanagement of funds. If - and that’s a big if - DOTD saw this coming, raising the gas tax should have been a phased endeavor, not a 100% increase for drivers, and businesses who employ fleets of vehicles for their day-to-day activities, over the course of one session.
Edwards’ administration took a big hit as well, Tuesday morning, when Lt. Gov. Billy Nungesser was accused of misuse of funds for personal gain after the curator of the Louisiana Museum in New Orleans resigned to get away from Nungesser.
No, in a majority conservative House and Senate, Edwards will be lucky to achieve any of these taxation goals. He’ll have to garner a super-majority (67 percent) to pass it without a vote of the people, which seems unlikely.
Edwards and his administration will have to prove to the people that current revenues can be managed appropriately. First stop? Divert more than 33-50 percent of the Capital Outlay Budget to actual infrastructure projects. Until then, it will be a struggle to pass any new taxes - especially in one of the poorest states of the union, with a tax system that - as mentioned - ranks at the bottom.