Gov. John Bel Edwards today released a comprehensive tax plan for the legislative session, calling for a unique tax on gross receipts, lowered tax rates and eliminating certain tax incentives and deductions to avoid a $1.3 billion fiscal cliff in mid-2018.
Edwards proposed a commercial activity tax, which is a tax on companies’ gross receipts or sales revenue, to replace the state’s current corporate franchise taxes, which will be phased out over 10 years. The CAT would raise between $800 million and $900 million per year, replacing the tax revenue lost when a temporary fifth penny of sales tax falls off the books in 2018.
“We cannot pretend we can only cut our way out of this problem,” Edwards said at an afternoon press conference. “We’ve been cutting services for the last decade.”
The governor argued the plan would provide a tax cut to middle-to-low income taxpayers, require large companies that have dodged taxes in the past to pay their “fair share,” and make the state’s finances more stable.
Under Edwards’ proposal, the CAT would apply to businesses with gross revenues of $1.5 million or more, whose tax rate would be .35%, or roughly one-third of 1%. Businesses affected would include partnerships, LLCs, LLPs, corporations, S corporations and joint ventures. Businesses that bring in less than $1.5 million would only be liable for a minimum CAT of between $250 and $750 a year, depending on their revenues. Nonprofit organizations would be exempt from the tax, as would be certain public utilities, insurance companies and financial institutions.
The Tax Foundation, a national think tank on tax policy, wrote a scathing indictment of gross receipts taxes this week, arguing the system drives up prices for consumers and drives down wages. Gross receipts tax schemes are used in only five other states, and several others are considering implementing them this year.
But Edwards insisted people must look at the plan in its entirety. On the whole, he said, the tax code would become more fair, broad-based and have lower rates.
The current corporate tax rates under Edwards’ proposal would be reduced from the current 4%, 5%, 6%, 7% and 8% scheme to three brackets at 3%, 5% and 7%. Personal income taxes would also be reduced, with the current 2%, 4% and 6% brackets being lowered to 1%, 3% and 5%.
The commercial activity tax on receipts would act as an alternative minimum tax, where companies would pay the greater of their CAT or corporate income tax liability. The federal income tax deduction, a unique system where mostly high-income earners deduct their federal tax liability from their state income taxes, would be repealed.
Much of the revenue raised by Edwards’ plan, totaling roughly $1.3 billion, would come from businesses paying the commercial activity tax, and the franchise tax phase out would amount to a tax cut of roughly $277 million per year for businesses.
“I meet with CEOs all the time about their plans to either expand their operations in Louisiana or bring new operations to Louisiana,” Edwards said. “They want predictability and stability. In many, many cases today they have been deciding to expand in states where the tax liability is higher because it is stable.”
Edwards said he has not felt much pushback to his plan from lawmakers in recent weeks, but many of the proposals must meet a high bar of two-thirds approval of both the House and Senate, which are dominated by Republicans who have not been sympathetic to his agenda in the past year.
And voters must approve an elimination of the federal deductibility, which they rejected last year. Coupled with the reduction of tax rates, the move would amount to a tax cut for low and middle income earners and a tax hike for high-income earners who use the deduction.
The governor also advocated expanding the sales tax to apply to more areas, which would raise money in the short term for next year’s budget.
See Edwards’ full 2017 budget plan. Â
—Sam Karlin
