BATON ROUGE, La. (BRPROUD) — Discussions are already beginning on how Louisiana’s tax structure can be changed and how to avoid a future fiscal cliff.
A recent study group was formed to look at ways to eliminate income tax. During the first meeting, lawmakers brought up other tax reforms like lowering the sales tax, raising property tax, or reducing the number of credits and exemptions.
“I think actually the process of going through reviewing the tax code with the goal of eliminating income tax, I think that might be able to lead to several reforms even if it doesn’t get rid of the income tax in and of itself,” said Steven Procopio, president of the Public Affairs Research Council.
Procopio said many agree the tax structure isn’t beneficial in many ways but it is difficult politically to change. While there is consensus change needs to be made, those who want their corner of the tax structure to stay the same dig their heels in. Tax bills require a two-thirds vote in support in both the House and Senate.
“I don’t think anyone has a general sense that our tax system is great or, honestly, even good. Most people can sit back and say this isn’t great but ‘I do like my little part, don’t change that’ that’s where we run into the problem. So I think there are a lot of things we can do on just about any kind of tax,” Procopio said.
When a tax revenue stream is removed or reduced, there has to either be cuts or an increase somewhere to fill the money gap. In 2025, the temporary half-cent sales tax will roll off or be extended. Procopio said there needs to be a plan in place on how to handle that loss of money should it be allowed to sunset.
“I think there’s a tension between people that want to renew the sales tax. But most of those people aren’t in the legislature. I don’t think there’s anywhere near a majority for that. I think it’s going to roll off. The key is, how are we just going to get to the date and just drop off, or do we have some sort of glide path? It seemed like we had a ton of money,” Procopio said.
In the last few years, the state has had billions of dollars flowing from the federal government for pandemic and hurricane aid. That money has now dried up, so making the budget will be a tighter process, especially with tax reform. Economists have also been predicting for months that the growth coming out of the pandemic will greatly slow down, leading to less extra money as seen in the last couple fiscal years.
“We had billions of dollars. Next year we’re going to be back in a posture which is ‘Oh, wow, we don’t have enough money for everything.’ But that’s because we spent that money properly; paying down debt on short-term things like infrastructure, on water resources, on all the things that we needed to spend it on,” Procopio said.
He also points out the state is in a better posture to handle this slow down unlike after the aid ran out following Hurricane Katrina. The spending of those federal dollars was sequestered to one-time expenses rather than recurring expenditures.
With the next session being a fiscal year, legislation that changes revenue can be proposed. For now, studies are being done to reach the goal of some kind of reform. There are no definitive proposals yet and if there will be legislation on tax reform it will be rolled out in the new year.