Landry administration offers first glimpse at tax reform strategy

State Rep. Richard Nelson during the Police Jury Association of Louisiana forum at the Shreveport Convention Center, March 10, 2023. (Henrietta Wildsmith for the Louisiana Illuminator)

Lower many of the state taxes Louisiana collects, but collect them from more sources.

That’s the gist of policy changes Gov. Jeff Landry’s tax policy pointman put before a panel of state lawmakers Thursday in hopes they’re amenable to rewriting a portion of the Louisiana Constitution.

Revenue Secretary Richard Nelson stopped short of endorsing a comprehensive tax reform strategy in his presentation to a joint meeting of the Louisiana House and Senate tax committees, but he did float several concepts the Legislature could consider.

One involves removing constitutional exemptions for state sales taxes on food bought for home preparation, residential utilities and prescription medicine. Nelson also said a new tax on digital products, including streaming television services, should also be considered.

Lawmakers face the politically tricky and time-sensitive task of finding ways to address a $550 million-plus revenue loss next year, when a temporary 0.45% portion of the state sales expires. Republicans comprise a supermajority in the statehouse and have indicated they aren’t likely to extend the tax — or seek new taxes. The GOP, which includes the governor as a member, has long called for updates to Louisiana’s corporate tax structure, but they acknowledge any such changes could exacerbate the so-called fiscal cliff that lies ahead.

“There’s no perfect tax policy. You really have to make a tax choice,” Nelson told lawmakers. “But you’re not helping anyone by delaying that choice.”

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Tax changes floated

In his presentation, Nelson suggested increasing the standard deduction Louisiana residents can claim on their state income taxes from $4,500 for all filers  to $12,500 for individuals and $25,000 for married couples. The current tax brackets, which range from 1.85% for the lowest earners to 4.25% for anyone making more than $50,000 annually, would be consolidated to a flat rate no higher than 3.5%.

Another proposal calls for the exemption on retirement income from state taxes to be doubled from $6,000 to $12,000. Sen. Sam Jenkins, D-Shreveport, told Nelson that could ultimately lead to more money being put into the economy.

Sales taxes in Louisiana are the highest in the country when factoring in what local governments add on to the state’s rate. On average, the local sales tax rate in Louisiana is 5.1%. The state’s 4.45% rate is 38th highest in the country, and that will fall even lower once the 0.45% goes away July 1, 2025.

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The state constitution exempts groceries, home utilities and prescription drugs from sales tax, costing $584 million last fiscal year. Those protections could be removed if lawmakers wish and voters approve, but conventional wisdom suggests voters aren’t likely to raise their own taxes.

Nelson said tax increases could also be considered for services such as landscaping, car washes and pet grooming — expenses wealthier taxpayers are more likely to incur.

Any such changes would have to be packaged within a thorough overhaul of state tax policy, he said. Specifically, that would take an entire rewrite of Article VII of the Louisiana Constitution, which deals entirely with state taxes.

Steven Procopio, president of the nonpartisan Public Affairs Research Council of Louisiana, pointed out that 80% of the more than 200 amendments made to the constitution since it was ratified in 1974 have involved Article VII.

Nelson said his preference would be to place the entire updated Article VII before voters, rather than the more than 50 amendments needed to change it. In addition to making the ballot item more easily digestible, it would also address concerns that Sen. Eddie Lambert, R-Gonzales, raised about potential imbalances if voters rejected individual taxes but failed to replace the revenue.

Tax Foundation influence

Multiple times in his presentation, Nelson referenced the Tax Foundation as an information source and measuring stick for how Louisiana compares to other states in terms of fiscal policy. For example, Assistant Revenue Secretary Luke Morris noted Louisiana has the highest corporate income taxes in the South and the nation’s second highest corporate franchise rate.

Sen. Mark Abraham, R-Lake Charles, challenged the context of the Tax Foundation’s rankings, explaining that it doesn’t take into account what the state actually collects in revenue once incentives are awarded. Numbers the revenue department provided showed the state granted more than $834 million in corporate income tax exemptions last year.

“We say we’re the highest, but in reality we’re not,” Abraham said.

Louisiana ranked 12th best for its tax burden and 15th for the percentage of tax burden based on income, according to figures Abraham provided from the Tax Foundation.

The Tax Foundation, a nonprofit fiscal policy thinktank, is widely considered a pro-business organization that leans to the center-right politically, with Republicans prominent among its board leadership.

Next move for lawmakers

If they want voters to consider any tax policy changes this year, the Legislature would need to act by Aug. 23 in order to put a proposal on the Nov. 5 ballot. The deadline to add items to the state’s Dec. 7 general election ballot is about a month later, but turnout for that date is expected to be significantly lower than the prior month’s presidential race.

Legislative leaders don’t appear to have a red carpet ready for the Landry tax plan, though the messages from House Speaker Phillip DeVillier have been mixed. In an interview Thursday morning, he indicated any special sessions are unlikely and told the Illuminator it would be challenging to convince lawmakers to remove protections on food, utilities and prescriptions.

“I believe other states are joining us in exempting food for home consumption. So it is going to be something that is going to be difficult to ask people on the ballot to tax themselves on it,” DeVillier said.

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Yet after his comments were published , DeVillier said on social media he would be open to a special session in August if legislators choose to have one. While the tax committees met Thursday, a daylong joint hearing on insurance and civil law was taking place at the Capitol. There’s a good chance lawmakers could hold a special session solely on that topic.

Senate President Cameron Henry, R-Metairie, was more definitive this week on his special session stance.

“Nothing to report,” he said in response to a text asking about the likelihood of a constitutional convention.

The question arose after major Republican donor Lane Grigsby emailed a working document to lawmakers, suggesting they meet next month to redo the constitution.

The state election calendar also puts pressure on the Legislature to get any constitutional changes before voters soon. After this fall’s elections, there isn’t another statewide vote until 2026.

Julie O’Donoghue contributed to this report.

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