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Is John Bel Edwards proposing ‘most terrible tax’? What business is saying


April 3, 2017
By Tim Morris
Originally Posted on The Times Picayune

Louisiana Gov. John Bel Edwards' proposal to impose a gross receipts tax on businesses is getting some harsh reviews from critics who see the governor's strategy as trying to soak state companies to pay for new spending.

The proposal will be debated when lawmakers gather for a 60-day fiscal session that begins Monday (April 10).

Patrick Gleason, director of state affairs at Americans for Tax Reform, a Washington-based advocacy and policy research organization, has a damning post at Forbes.com under the headline "Texas Set To Repeal The Most Terrible Of Taxes, While Neighboring Louisiana Looks To Impose It."

Edwards is pushing a plan to create a new 0.35% tax on businesses' gross receipts above $1.5 million.

"Businesses would either pay the new gross receipts tax or the state corporate income tax, with Gov. Edwards' plan dictating firms pay whichever liability is higher," Gleason writes. "After the enactment of perennial tax increases since Gov. Edwards took office, this gross receipts tax is his most harmful proposal thus far.

"Economists and tax policy experts across the political spectrum agree that gross receipts taxes are among the most misguided and harmful forms of taxation imposed by a government at any level. They depress economic growth and reduce businesses' capacity to expand and create new jobs. Worse, even businesses that fail to turn a profit and suffer great losses still have a gross receipts tax liability. It is for these reasons that only five states impose a statewide gross receipts tax."

Gleason notes that Texas is considering legislation to phase out its gross receipts tax. "In fact," Gleason says, gross receipts taxes may soon be repealed in two economically and politically important states - Texas and Virginia - depending on the choices made by lawmakers."

The local Pelican Institute, in partnership with the Economic Research Center at the Buckeye Institute, offered a similar analysis last week:

"If passed, a gross receipts tax would be a quadruple whammy for families and businesses across Louisiana by pushing capital out of the state, reducing production, raising costs and lowering real wages," Will Booher, Interim Executive Director of the Pelican Institute, said. "From Shreveport to Slidell - the service industry to seafood - this tax is bad for all Louisianians."

The Pelican/Buckeye assessment is notable because Ohio is cited as a state where the tax is working. Not so, said Buckeye Institute President and Chief Executive Officer Robert Alt,

"Ohio has seen the impact this type of tax policy can have on a state," Alt said. "This tax hurts average citizens by creating conditions in which jobs are cut and prices go up.  It is unclear why any state would want to import this type of plan."

Stephen Waguespack, president of the Louisiana Association of Business and Industry, told The Associated Press that the idea of a tax rewrite aimed at raising more money for state coffers was "tone deaf to economic reality" amid a state recession.

Edwards said he's trying to make sure businesses pay "their fair share," so that the funding of government services doesn't rest disproportionately on individual taxpayers, like middle-class households.

"It simply asks our businesses to do their part," he said.

But Dawn Starns, state director of the National Federation of Independent Business, told the Baton Rouge Business Report that the tax could have an adverse impact on small businesses, especially those just starting out. If a natural disaster strikes, affected businesses still have to pay taxes on sales and often cannot offset losses under a gross receipts tax.

"If a small business is just starting out and has a bad year, you're taxing them on receipts before they make profits," Starns told the Business Report. "How do you justify that?"

In Ohio, the tax passed as part of a major tax reform package in 2005. In Louisiana, Starns said,  the tax is cherry-picked to fit the governor's purposes.

"We feel like this is another money grab," she says. "This is not reform. This is, 'What else can we throw out to see what passes?'"

If Edwards hopes to convince business interests (and lawmakers) that his plan is fair, he has quite a ways to go.