Louisiana lawmakers return to Capitol for special session focused on tax reform

BATON ROUGE, La. (AP) — Lawmakers convened at the state Capitol on Wednesday for their third special legislative session of the year, with Gov. Jeff Landry urging them to pass a sweeping tax reform package that he says would make the state more economically competitive.

With the state facing an estimated budget hole of more than $700 million next year, largely due to the expiration of a temporary 0.45% sales tax, Landry wants the GOP-dominated Legislature to revamp the tax structure, which he said has long been held together by “duct tape and bubble gum.”

“This tax code is bloated, this tax code is broken, this tax code is incredibly outdated and this tax code is holding our state back,” Landry told lawmakers, holding up a thick copy of the code.

Landry framed his tax reform plan as part of a broader mandate for economic overhaul following Donald Trump’s election victory.

Among the governor’s main proposals is the flattening of income and corporate tax rates. To offset those revenue losses, Landry proposes to extend the sales tax to other services and digital goods, such as Netflix, lobbying, dog grooming and car washes. The state would also make the 0.45% sales tax permanent.

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Additionally, there are plans to remove dozens of tax breaks, including for the film industry and for rehabilitating historic structures, which Landry cast as preferential treatment. There are presently 223 sales tax exemptions, said Richard Nelson, Secretary of the Department of Revenue and the architect of Landry’s plans.

Supporters of the proposed reforms, which include constitutional amendments, believe they will attract business and help retain residents as Louisiana battles outward migration.

Democratic Rep. Matthew Willard, the state House minority leader, has said he is not convinced that flattening individual income taxes will improve the economic outlook and fears it will increase the deficit.

According to the state’s Department of Revenue, Louisiana residents currently pay a 4.25% tax rate on income $50,000 and above, 3.5% on income between $12,500 and $50,000, and 1.85% on income $12,500 and below. Landry’s proposal would eliminate income taxes for those making up to $12,500 and would set a flat rate of 3% for those earning more.

There are nine states that do not levy an individual income tax, among them nearby Florida, Tennessee and Texas. Landry said he hopes to put Louisiana on a path to eventually get rid of the income tax altogether.

The vast majority of Louisianians will see significant tax cuts from the proposed changes, according to an analysis by the state legislator’s longtime former chief economist and funded by a coalition of nonpartisan public policy groups. A little over 1 million households would see their state taxes reduced by 20%, it found.

The reform package would eliminate the corporate franchise tax and ultimately reduce taxes on corporate income tax to a flat rate of 3.5%. Currently, the state applies a 7.5% tax rate to corporate profits exceeding $150,000, a 5.5% rate to profits between $50,000 and $150,000, and a 3.5% rate to profits below $50,000.

Reducing the corporate tax rate “will be a signal to the world that Louisiana is open for business,” Landry said.

Lawmakers from both sides of the aisle also said they want to ensure that parish governments do not lose crucial revenue on as a result of the overhaul. The changes would incentivize local governments to eliminate property taxes on business inventory and end local taxes on prescription drugs and incentives.

At an Oct. 24 Senate hearing, Nelson, the Revenue secretary, said the changes would prevent citizens from being taxed for medical needs and instead shift their taxes to consumer services such as landscaping.

Not all lawmakers appeared convinced at the prospect of adding new taxes alongside income tax cuts. “My neighbors are going to crucify me” over taxes on lawn-mowing services, Republican Sen. Stewart Cathey, Jr. said at the hearing.

Other lawmakers noted that there will likely be stiff opposition from special interest groups that would lose longstanding tax breaks. And they questioned whether a special session in the aftermath of the election would allow enough time to fully process and debate massive policy changes.

Landry also seeks to alter two state trust funds holding nearly $3.8 billion combined. Less money would be channeled to the state’s savings account and there would be more from corporate tax and mineral revenue for lawmakers to spend, according to an analysis from the Public Affairs Research Council, a nonpartisan think tank.

Landry’s agenda for the session also listed 23 items including teacher pay and a possible reworking of the state court system.

The legislative gathering must conclude no later than 6 p.m. on Nov. 25.

Any proposed changes to the state constitution passed by lawmakers would have to be approved by voters in statewide elections scheduled for March.