In his second State of the State address today, Gov. John Bel Edwards told lawmakers that the “most significant part” of his plan for the regular session involves adding “stability, predictability and fairness” to the state’s corporate income tax structure.
In a longer-than-usual speech—a roughly 40-minute address that required the use of a teleprompter, a first for the governor—Edwards said his plan of attack includes expanding Louisiana’s tax base, reducing tax rates for 90% of individual filers, and removing and limiting certain tax credits and exemptions.
Those changes would largely be placed on the backs of business and industry. “It’s to ensure that these businesses only pay their share for using Louisiana’s roads and bridges, for having their employees educated and trained in our schools and universities,” Edwards said. “This broadens the base of our business income tax system to ensure that everyone pays their fair share.”
The governor put some statistics behind his argument. He said 80% of Louisiana corporations do not pay any state income tax. “For C-corps, those businesses that are taxed at the entity level, 80,000 out of 101,000 did not pay any income taxes,” Edwards said. “That means a CEO’s administrative assistant at some of the most profitable corporations paid more in state income tax than the companies they work for. That’s just not right. Basic fairness demands that we do better.”
Camille Conaway, the Louisiana Association of Business and Industry’s senior vice president, authored a memo that was released prior to the governor’s speech that offered a different take. “The current rhetoric ignores the facts,” she said. “National reports show that employers in Louisiana pay 41% of all state taxes and 59% of local taxes, representing nearly half of taxes collected in Louisiana.”
She also pointed out that businesses in Louisiana pay the majority of property taxes and half of sales taxes. Businesses also pay a franchise tax and an inventory tax in the state, as well as excise taxes like severance and gas.
Edwards’ approach would force 80,000 C-corps that currently remit no income taxes with a commercial activity tax, which would be applied in two general ways. There would be a minimum commercial activity tax (MCAT) of $250 to $750 for each business entity in the state that has gross receipts totaling $1.5 million or less. There would also be a standard commercial activity tax (CAT) for all other businesses, which would be equal to 35% of their gross receipts.
The CAT is at the heart of the governor’s larger plan to solve a $440 million budget shortfall for the fiscal year that begins July 1 and $1.3 billion in temporary taxes that expire in 2018. While Edwards and his allies favor new revenue in the form of tax increases to tackle the more immediate deficit, conservatives in the Legislature have been focusing largely on spending decreases.
“This is the big moment,” Edwards said in his speech to House and Senate members, a majority of whom are Republican. “The structural deficits have gone on for far too long. The resistance to doing what is right and necessary to fix this problem once and for all is no longer acceptable.”
The governor also wants to:
Remove one penny from the state’s 5-cent sales tax, which is slated to fall off next year, and then more broadly apply the remaining 4% to different services not currently captured under the sales tax structure.
Withhold 2% of the revenue forecasted by the Revenue Estimating Conference that the state would not be able to spend in an effort to avoid future midyear budget cuts.
Give 90% of individual filers an income tax cut.
“Simplify” the corporate tax structure by reducing the current five corporate income tax rates to three lower rates.
Eliminate the deductibility of federal income taxes.
Also mentioned in Edwards’ speech were a call to keep the TOPS college scholarship program afloat, supportive words for a possible hike in the gasoline tax, a promise to maintain a focus on the state’s coastal master plan, and an endorsement of specific equal pay and minimum wage bills. The governor likewise cited a criminal justice reform package he is pushing that would reduce Louisiana’s prison population by 13% and “save taxpayers over $300 million over the next decade—savings we can reinvest into our efforts.”
Once again the governor asked lawmakers to present alternative ideas if they had any. From those opposing his tax plans, he even asked for a list of potential spending reductions.
“As I have said to you all in announcing this plan, I am open to dialogue,” he said. “I am open to compromise. I am certain that we can find common ground on this issue because we have to. However, here we are—nearly two weeks since I unveiled this plan—and not a single alternative has been made.”
If lawmakers fail to accomplish something meaningful in the regular session, Edwards also threatened a “needless and costly special session” to keep lawmakers in Baton Rouge.
The session will last two months and is scheduled to adjourn on June 8.
Jeremy Alford will publish a daily update throughout the legislative regular session on Daily Report PM. Alford reports on Louisiana politics at LaPolitics.com. Follow him on Twitter or on Facebook. He can be reached at JJA@LaPolitics.com.