Jindal’s shopping the tax swap to lawmakers, who will consider it in the regular session that begins in April. He described the proposal Thursday as a way to save Louisiana families money and make the state more appealing to business and industry.
“We are meeting with every legislator over the coming weeks to discuss the details of the tax reform plan. Our goal is to eliminate all personal income tax and all corporate income tax in a revenue neutral manner,” the Republican governor said in a statement.
He didn’t say how much sales taxes would need to be raised — or which tax breaks he’s proposing to eliminate — to fill the nearly $3 billion gap that would be left by eliminating income taxes. The state’s sales tax rate is 4 percent, but local municipalities also charge additional sales taxes. Each 1 percent of the state sales tax is estimated to generate about $732 million this year.
“Eliminating personal income taxes will put more money back into the pockets of Louisiana families and will change a complex tax code into a more simple system that will make Louisiana more attractive to companies who want to invest here and create jobs,” Jindal said.
Tim Barfield, executive counsel for the Department of Revenue, is leading the tax code revamp for Jindal. He said the package of proposals also could include a tobacco tax increase to help offset the loss of the income taxes.
With local and state sales taxes combined, Louisiana already has one of the highest sales tax rates in the nation, even before any changes proposed by Jindal. Critics of sales tax hikes say they fall disproportionately harder on the poor, because sales taxes take a larger slice of their earnings. The state’s income tax, by comparison, has steps where a larger percentage of income is paid in taxes the more a person or household earns.
“At a bare minimum, a tax overhaul should not be an excuse to make the state’s poorest citizens pay more, and they would suffer the most from the governor’s proposal to raise sales taxes,” said Jan Moller, head of the Louisiana Budget Project, a left-leaning organization that advocates for low- to moderate-income families, in a statement.
Barfield said the Jindal administration is looking for ways to lessen the blow of any sales tax increases to low-income taxpayers.
He said current state sales tax exemptions on food for home consumption, prescription drugs and residential utilities — outlined in Louisiana’s constitution — would stay in place for all residents. Also, the administration is looking for ways, possibly a tax rebate, to help offset the impact of sales tax hikes for low-income workers.
“We want low- and middle-income taxpayers to be no worse off than they are today,” he said.
He said making Louisiana a more attractive place for economic development will help low-income residents by offering them more job opportunities, and he also said taxpayers can make decisions on their spending based on the sales tax rate, which gives them a flexibility for dealing with any increases.
A 2012 study by the Tax Foundation said Louisiana has the third highest sales taxes in the nation, an average 8.85 percent when both state and local sales taxes are combined.
“While we are glad the governor plans to keep the existing exemption on food, drugs and residential utilities and rebate programs for low-income workers, we fear these steps won’t be enough to cushion the blow on the state’s most vulnerable citizens,” Moller said.
The personal income tax is estimated to generate $2.6 billion for this year’s budget, while the corporate income and franchise taxes Jindal proposes getting rid of are estimated to bring in another $340 million, according to data from the Louisiana Legislative Fiscal Office. The general state sales tax is expected to yield $2.6 billion, plus another $334 million for vehicle sales taxes.