Louisiana House gets halfway to advancing major tax swap

(The Center Square) – The Louisiana House voted to eliminate a major tax break while lowering rates, though the proposed constitutional amendment that would make the swap possible fell short of the two-thirds vote needed for passage.

House Bill 274, the constitutional piece, failed Wednesday on a 65-26 vote; it needed 70 votes to pass. Several Republicans who likely would have supported the measure didn’t cast a vote one way or the other, allowing Democrats to block the bill.

Rep. Stuart Bishop, the Lafayette Republican who sponsored both bills, plans to try again at a later date.

House Bill 278, which contains the companion law the constitutional amendment would have enacted, would eliminate the state income tax deduction for federal income taxes paid. Lawmakers and policy watchers consider the deduction bad policy in part because it ties Louisiana’s tax policy to the federal government’s. When the federal government cuts taxes, the state gets a windfall, but if federal taxes rise state revenue falls.

In exchange for giving up the federal income tax deduction, taxpayers would get lower state income tax rates. Instead of three brackets charging a 2% tax rate on the first $12,500 of net income, 4% on the next $37,500 and 6% above $50,000, the rates would be 1.85%, 3.5% and 4.25%. Voters would have to approve the constitutional amendment, which would be on the ballot in the fall of 2022.

House members adopted an amendment by Rep. Mark Wright, R-Covington, that would reduce the rates further if revenue growth hits certain triggers. North Carolina followed a similar model, he said.

Bishop called the tax swap “revenue neutral.” The Legislative Fiscal Office estimated it would increase taxpayer liability by about $4.2 million per year.

HB 278 passed with a 70-28 vote.

The House approved House Bill 370 by Rep. Barry Ivey, R-Baton Rouge. It calls for a constitutional amendment to create a new economic development incentive comparable to the Industrial Tax Exemption Program for manufacturers. Ivey’s proposal does not apply to the manufacturing sector.

Ivey’s proposal would create three new types of property tax exemptions for nonmanufacturing capital investments that local governments might want to try to attract: An eight-year, 80% exemption the state Board of Commerce and Industry would review, a 100% exemption for up to 15 years and a 100% “executive exemption” determined by the governor.

In all cases, Ivey said, the parish council or police jury, school board and sheriff’s office would have to approve to give up the taxes. Questioned about whether smaller taxing authorities, such as fire and recreation districts, would have a say, Ivey said that wouldn’t be practical.

The House also approved House Bill 464, the statutory companion to HB 370. Ivey said HB 464 isn’t quite in its final form yet; if the Senate also approves, Ivey said the bill would go to conference to hammer out the differences between the versions.

The House unanimously approved Senate Bill 161 by Sen. Bret Allain, R-Franklin, which extends a suspension from corporate franchise taxes for small companies until the end of 2025. Corporations with less than $1 million in taxable assets would not have to pay franchise taxes on the first $300,000. The exemption saves companies a total of about $7.5 million per year, keeping that amount out of state coffers, according to the Legislative Fiscal Office.

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