The Advocate. September 30, 2022.
Editorial: No state income tax? Beware of legislators’ posturing on tax cuts in election year
With vast experience in state government, including as lieutenant governor, Jay Dardenne’s résumé is long. But one former capacity is particularly relevant to his current job: He was chairman of the Senate Finance Committee, a pivotal position in building the state’s annual budget.
Dardenne is now commissioner of the Division of Administration, essentially budget chief for Gov. John Bel Edwards, so he knows the minefield as well as anybody.
Dardenne noted at a meeting of the higher education board that 2023 is both an election year and a fiscal session. The political calendar will include races for governor and legislative seats, and some lawmakers will be in their final session before term limits force them out.
“You are going to have a lot of posturing going on,” Dardenne said. “We don’t think the Legislature ought to take any dramatic steps with regard to tax reform.”
The House Ways and Means Committee recently launched a seven-month study on the possibility of eliminating the state income tax. Rep. Richard Nelson, R-Mandeville, and other backers note that fast-growing states like Texas and Florida have no state income tax.
“Where are you going to replace that huge amount of revenue that gins the state budget?” Dardenne asked.
It is a very relevant question.
Overall, as the nonpartisan but conservative-leaning Tax Foundation reports, Louisiana and Texas and Florida are in the same tier as relatively low-tax states, when state and local costs are calculated together. But the states do have very different ways to get the money.
Replacing the state income tax has been discussed before. But unless the state wishes to slash colleges and health care services, the income tax is today essential.
Sales taxes in Louisiana are already a perennial competitor for highest in the nation. Property taxes are very low in Louisiana compared to Texas and Florida, two states much envied in the Ways and Means Committee hearings.
Dardenne said the Legislature’s discussion must include how the state would replace the roughly $5 billion in annual revenue now raised by the state income tax on individuals and corporations.
“Where are you going to replace that huge amount of revenue that gins the state budget?” Dardenne asked.
Again, Dardenne knows the score. The income tax receipts to the state general fund are the mainspring of finances. That is obscured by the overall state budget of $39 billion — making a $5 billion cut sound small.
Not so: Much of that money is from federal funds, which must be used for specific purposes and can’t provide for general state services. And much of the rest is pass-through money, as things like tuition paid by students to state government are accounted for in the budget number but can’t — and shouldn’t — be used for other purposes.
A large part of the general fund is itself dedicated, through the state Minimum Foundation Program for public schools. While in theory it is possible to cut schools funding, it’s never been done — and for good reason, as education must be Louisiana’s priority for spending.
When the income tax was previously targeted, about a decade ago in the administration of Gov. Bobby Jindal, sales tax was considered as an alternative source of revenue. Sales taxes would have had to be raised to enormous highs to make up the difference, so the idea was quickly shelved.
To convert to a system more like that in Texas, property tax millages would have to be raised to levels unheard of in Louisiana. As property taxes are unpopular politically, legislators are not likely to embrace a sweeping change.
Unless, as the old pro Dardenne observed, election-year posturing gets out of hand. Let’s hope it doesn’t.
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