The Republican governor and his leader on the tax code revamp, Tim Barfield, outlined the first specifics of Jindal’s proposal to rewrite Louisiana’s tax code, but they didn’t provide the legislation with the full details.
Jindal wants to boost state sales taxes from 4 percent to 5.88 percent; nearly triple cigarette taxes from 36 cents per pack to $1.41; and assess sales taxes on a wide range of services not currently taxed, such as haircuts, cable TV and landscaping.
He also wants to remove $96 million in sales tax breaks, shrink the number of severance tax exemptions for the oil and gas industry, and limit the state’s economic development incentives for the film industry. Sales tax holidays would disappear.
In exchange, the plan would do away with the state’s individual income tax and the state’s corporate income and franchise taxes, which bring in about $3 billion a year.
“We think the next big step to bringing our kids back and growing the state economy is getting rid of the income taxes,” Jindal told the House and Senate tax-writing committees, in a rare appearance at a legislative hearing.
It’s unclear who would win and who would lose with the tax code changes because key details were still missing, including which tax breaks would disappear.
If lawmakers agree, Louisiana’s combined state and local average sales tax rate would shift to 10.75 percent, the highest rate in the country. And new services would be swept into the state’s 5.88 percent sales tax rate.
Rep. John Bel Edwards, chairman of the House Democratic Caucus, called the governor’s tax plan the largest middle-class tax hike in state history to give tax breaks to out-of-state businesses and the wealthy.
“It’s pretty obvious to me that the middle class on down are going to have a net tax increase and a bigger share of their income will go to support government services than those at the upper end of the income ladder,” he said.
Jindal administration leaders said they’ve worked to limit the impact on the poor and others that don’t currently pay income taxes but would be hit with higher sales taxes.
Tax exemptions on food, medications and residential utilities would remain in the constitution, and new tax rebate programs would help low-income residents and some retirees offset the sales tax hikes.
People who earn less than $20,000 would be eligible for a maximum tax rebate of $175 per year, based on income and number of children, according to Doug Baker, revenue department spokesman. Retirees would be eligible for a rebate if they bring in less than $60,000 a year in adjusted gross income, with no details yet provided on the maximum rebate.
“This plan will put everyone on a level playing field, but makes sure no one pays more than their fair share,” Barfield said.
The changes would kick in Jan. 1, 2014, Jindal said.
Lawmakers will consider the ideas in the legislative session that begins April 8. Initial reviews from committee members were skeptical, with Republicans and Democrats questioning the need for the overhaul, rather than smaller tweaks to the tax code.
“I hope you can make me comfortable because I’m uncomfortable now,” Sen. Bob Kostelka, R-Monroe, told Barfield.
Barfield said Louisiana was still operating off a tax code devised in the Huey Long-era, with some exemptions that date back to 1922. He said Louisiana currently has a low tax burden when exemptions are considered, but he said the system is complex and difficult to navigate.
“The tax code has reached dysfunction,” he said.
Rep. Eddie Lambert, R-Gonzales, asked whether a more limited tax revamp would be more appropriate.
“Why wouldn’t we look at these exemptions to make the code easier rather than this massive undertaking?” he said.
Jindal wants the tax code rewrite to keep the state’s overall tax collections at the same amount that would have been received without the changes — what the governor calls “revenue neutral.”
His goal is to get rid of the income taxes. He told lawmakers he’s flexible on how to do that if lawmakers want to tweak parts of his plan.
“We are not presenting to you today a plan etched in stone,” the governor said. “There are a lot of different ways to get to our end point, which is a better tax code for the people of Louisiana.”
A look at Gov. Jindal’s tax rewrite proposals
BATON ROUGE (AP) — Some of the changes in the Jindal administration’s proposed rewrite of the state tax code, as outlined to lawmakers on Thursday:
—INCOME TAXES: Would eliminate Louisiana’s personal income tax and corporate income and franchise taxes.
—SALES TAXES: Would increase Louisiana’s state sales tax rate from 4 percent to 5.88 percent, which would boost Louisiana’s combined local and state sales tax rate average to 10.75 percent, the highest in the country.
State sales taxes would be charged on a new list of services not currently taxed, like haircuts, landscaping, cable TV, pet grooming, tanning salon visits, agricultural services and data services. Exempt would be health care, education, construction, real estate, financial services, advertising purchases, legal services, oil and gas services and funerals.
Also, there would be rebate programs for low-income households and for retirees with less than $60,000 adjusted gross income to help offset the increased sales tax costs. The annual maximum rebate to low-income households would be $175. No word yet on the maximum rebate available to retirees.
—TOBACCO TAXES: Would increase cigarette taxes from 36 cents per pack to $1.41 per pack and would raise variable rates for other tobacco products to 68 percent of the manufacturer’s price.
—TAX BREAKS: Would eliminate more than 200 tax breaks, including 130 income tax breaks that would disappear with the removal of the income taxes.
—ECONOMIC DEVELOPMENT INCENTIVES: Would maintain economic development incentive programs, but would make tweaks to limit the film tax break program.
—SALES TAX COLLECTION: Would change the oversight of state and local sales tax collection, creating a Louisiana Sales Tax Commission, with appointees named by the governor.
—TAX COURT: Would create a tax court to hear tax disputes and appeals. Three elected judges would sit on the tax courts, which would be housed within the current state appeals court system.
By MELINDA DESLATTE