Tax Reform Gridlock Could Force Immediate Special Session for Louisiana Legislature

Tax reform and closure are hard to find for Louisiana legislators. The current legislative session is set to adjourn at 6 p.m. CT on Thursday. Last week, Louisiana Governor John Bel Edwards (D) called for a subsequent three-week special legislative session to begin the same evening as the current session ends if a budget is not passed.

Considering Louisiana’s inability to simplify the tax code in recent years, the need for an additional session is not surprising. However, the persistent lack of substantial progress proves troubling. Temporary taxes contributing $1 billion to Louisiana’s tax receipts are set to expire July 1, 2018, creating a fiscal cliff. 

Previously, legislators passed a temporary one-cent sales tax increase with dizzying implications and other short-term measures to procrastinate fully addressing the state’s financial concerns. Although these Band-Aid techniques allowed Louisiana to stabilize the operating budget last year, they further complicated the Louisiana tax code.

At the beginning of the legislative session in April, Governor Edwards proposed a tax plan removing a number of sales tax deductions, lowering the individual and corporate income tax rates at the state level, broadening the tax base, and eventually eliminating the franchise tax. The plan also included a gross receipts tax on business transactions. However, well-documented problems with such taxes led to its retraction in May.

Recognizing the need to study and prepare solutions, legislators created the Task Force on Structural Changes in Budget and Tax Policy last year through the Department of Revenue. The Task Force produced an in-depth review of the state’s finances and offered a number of revenue-neutral proposals for economic growth. The Task Force’s proposals are supported by findings from the Sales Tax Streamlining and Modernization Commission, the Tax Foundation, the Council for a Better Louisiana, and an independent study by several professors, including Task Force co-chair Dr. Jim Richardson of LSU.

Despite the Task Force’s diligent work and concrete ideas for reform, bills to implement its recommendations still lack sufficient support. Some legislators refuse to support tax bills that fail to fully address next year’s fiscal cliff, while others adamantly oppose any proposals that might be considered a tax hike.

Over the past few weeks, a number of tax bills floated around the state House and Senate, but none gained substantial support or offered comprehensive tax reform. House Bills 353, 356, 359, 360, 501, and 673 aimed to close gaps in the tax base and implement flat tax rates. Specifically, the bills included initiatives laid out by the Task Force to eliminate federal income tax deductions and lower both corporate and individual income tax rates at the state level. Individually, the bills were referred to the Senate Revenue and Fiscal Affairs Committee this past week. Unfortunately, the representatives who sponsored the bills withdrew them over the weekend in response to resistance from legislators.  

In sum, the regular 2017 legislative session offered very little financial progress for a state in desperate need of effective tax reform. As this session comes to a close, another one rises in its place. The legislators’ inability to pass tax reform bills, despite bipartisan proposals suggested by the Task Force, hurts Louisiana taxpayers and the state’s economic growth. Louisiana needs tax reform: fewer taxes with broader bases and lower rates.