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Political Horizons: Cleansing the tax code of special interest breaks is a hard sell at Capitol

Political Horizons: Cleansing the tax code of special interest breaks is a hard sell at Capitol

Louisiana legislators have made multiple assaults — with little success over the years — against the vast array of tax exemptions, credits, deductions, and rebates that annually pull hundreds of millions of dollars out of the state Treasury.

Legislative leaders need that money to reduce corporate and personal income tax rates, thereby simplifying the state’s Byzantine tax structure and make the state more enticing to business. But business lobbyists themselves have put up some formidable obstacles to eliminating a lot of those tax breaks.

“Federal income tax deductibility” is perhaps the most vulnerable and certainly its elimination has become one of the key pieces in the sweeping tax revamp package.

The break allows taxpayers to reduce their tax burden to the state by claiming deductions they were able to take on their federal returns. It’s used primarily by our wealthier neighbors and forgives about $1 billion in revenues that otherwise could be used to pay for annual expenses.

Some years — like after the Trump tax cuts of 2017, which reduced some federal tax deductions — benefit the state’s Treasury. Other years it costs the state big dollars, thereby making the state’s annual operating budget beholden to what happens in Washington, D.C.

The furthest along is Senate Bill 159, which was sent to the House Ways & Means committee Thursday after passing the full Senate on a 36-3 vote Tuesday.

Two similar, but not quite the same, measures advanced out of the House Ways & Means Committee and now require vetting in another House committee before moving to the floor for a vote by the entire lower chamber.

Franklin Republican Sen. Bret Allain, who as chair of the Senate Revenue & Fiscal Affairs Committee has taken a lead on the tax revamp effort, says he’s hoping to link in voters’ minds lower rates with the removal of federal deductibility.

Under Allain’s SB159, when coupled with companion legislation, most people would pay about the same amount of tax, and the state would collect about the same amount of revenue.

Allain, who has the backing of public policy advocates of all political stripes, wants to reduce the top rate for individuals from 6% to 5% and for corporations from 8% to 6%. Eliminating federal deductibility, which only Louisiana and Alabama allow in this way, would pay for the lower rates, Allain contends.

But it’s in the state Constitution and would need a two-thirds vote in each legislative chamber, plus a majority vote in a statewide Oct. 9 election before federal deductibility could be removed.

“And that’s basically what this bill would do,” said Robert Scott, president of Public Affairs Research Council of Louisiana, a 70-year-old Baton Rouge policy think tank. “It needs to be removed from the constitution to allow the Legislature the flexibility to do better tax policy.”

In 2016, the last time lawmakers tried to drive a stake through the heart of this particular tax break, at least as it applies to corporate income taxes, more than 1 million Louisiana voters said no way.

Former state Rep. Julie Stokes, a veteran of past tax battles, suggests keeping federal deductibility a simple up or down vote.

“I would strip every other issue from it,” Stokes said.

Since all tax measures impact everyone differently, adding other issues to the legislation means energizing those hurt by the changes. Federal deductibility already has a base, albeit comparatively small, of taxpayers who pay less because of it.

“If you pit any one group against another group, you’ll lose,” Stokes added.

An accountant by trade, the Republican Stokes was known during her four years in the Louisiana House, when she was representing Kenner, for whipping out massive spreadsheets to augment her in-the-weeds approach to arguing the impact of this or that nuance in some proposed change to tax law.

Sidelined by breast cancer in 2017, now resolved, Stokes heads a new policy analysis group called Ellevate Louisiana. Where the Louisiana Budget Project generally views financial issues from a liberal point of view, the Pelican Institute for Public Policy from the conservative side, Stokes said Ellevate is looking at issues from a woman’s perspective.

Federal deductibility seems the only tax break whose removal has any traction in the Legislature.

Powerful House Ways & Means Committee Chair Stuart Bishop, R-Lafayette, bowed to opposition to his 100-page proposal to eliminate a lot of tax breaks. The business community is on board with getting rid of every single tax break that doesn’t affect them, but adamantly against those that do.

“We have credits on there that make zero sense,” Bishop said. But he also acknowledged that his House Bill 444, which has yet to clear the committee he chairs, is “the most controversial bill I’ve ever handled.”

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