Sam Karlin/Manship School News Service
Gov. John Bel Edwards on Wednesday unveiled a far-reaching tax plan to fix a $1.2 billion fiscal precipice the state is approaching next year, calling for a striking departure from how businesses are currently taxed and cutting income taxes for most Louisiana residents.
A key part of the plan is the addition of a commercial activity tax (CAT), essentially a 0.35 percent tax on gross receipts for businesses. That tax would raise between $800 and $900 million per year. Businesses making less than $1.5 million would not be subject to the CAT, and would instead pay $250 to $750 per year.
Edwards called for a reduction to personal and corporate income tax rates, an end to corporate franchise taxes phased out over 10 years and eliminating the fifth penny of sales tax that lawmakers raised last year temporarily to cover a more than $1 billion budget hole.
Louisiana currently has the highest combined state and local sales tax in the nation.
“Our problem is easy to identify. We’re operating on a broken outdated structure,” Edwards said at an afternoon news conference at the Capitol. “The central piece of this plan involves leveling the playing field that has been unfairly tilted toward the big guy.”
To do that, Edwards’ plan would eliminate a host of tax deductions and incentives he said allows companies to skirt paying taxes. The CAT would act as an alternative minimum tax to corporate income taxes.
Lawmakers convene April 10 for a 60-day special session, which will focus largely on tax and spending changes to address a $440 million budget shortfall for next year’s budget and the fiscal cliff that begins July 1, 2018.
The governor’s plan faces a high threshold for passing the Republican-dominated Legislature, with many of his proposals requiring a two-thirds vote, and others requiring a public referendum.
The House in particular has been a thorn in Edwards’ side since he took office a year ago January. It defeated key items on his agenda and hijacking his spending and tax bills in the process. But Edwards said he has received little pushback from the lawmakers he has pitched his current plan to in recent weeks.
“There were very few voices of dissent to many of these proposals, and there were no proposals given to me from the Legislature at all. I am absolutely open to compromise, but I am asking the Legislature to come in April 10th with an open mind.”
The current personal income tax brackets of 2 percent, 4 percent and 6 percent would be lowered to 1 percent, 3 percent and 5 percent, respectively, and the federal income tax deduction, taken mostly by higher-income earners, would be eliminated.
The corporate income tax brackets would be lowered from 4 percent, 5 percent, 6 percent, 7 percent and 8 percent to three brackets: 3 percent, 5 percent and 7 percent.
The plan would apply the sales tax to several items and services currently exempted. The Legislature would be required to budget only 98 percent of available revenue to save some for mid-year shortfalls or disasters.