La. senators pass ‘state income tax elimination’ bill with huge caveats

13th June 2011   ·   0 Comments

By Christopher Tidmore
The Louisiana Weekly

A ten-year phase out of the Louisiana’s Personal and Corpo­rate Income taxes passed the State Senate on Tuesday, June 7, but with a twist. The state can only begin the decade-long repeal if a commission tells the legislature, by January 6, 2012 how to pay for it, and the legislature subsequently approves a plan to fill an almost $3 billion hole.

The author of the bill to phase out the state’s income taxes on individuals and businesses, Democratic Senator Rob Marionneaux, ardently disagreed with the move to amend his bill to require such a commission.

“We’re going to increase the size of government so we can reduce it?’’ he maintained. “There are more studies sitting in the back anterooms than the shelves can hold.’’

Marionneaux and others explained that the amendment by GOP Senator Jack Donahue was designed to kill the tax repeal without requiring senators to directly reject it during the current election year.

New Orleans Democrat J.P. Morrell said that Donahue’s SCORE Amendment to the previously simple legislation to phase out the Corporate and Personal Income taxes “seeks to quietly strangle this bill.”

Donahue said it was nothing of the sort. In an interview with The Louisiana Weekly, the Mandeville Republican explained that before the legislature removes $2.7 billion dollars of the nine billion the state collects in taxes, it should have a way to pay for it. His amendment to create the State Commission on Revenues and Expenditures, or SCORE, to study the tax repeal and offer suggested ways to achieve it, is “just being responsible.”

“We have to have a plan,” Donahue told this newspaper. “It would be everybody’s desire to make Louisiana a more competitive state.” Neither Texas nor Florida has an income tax, which the Senator puts as a reason for the Pelican State’s relative economic disadvantage in comparison.

“I’m in favor of the plan. We are in competition with surrounding states for new businesses moving in. Getting rid of the corporate tax, getting rid of the personal tax, is something I would like to do.” However, the Senator sponsored the amendment due to the fact, “What nobody has seemed to explain is where the money to pay for those taxes lost would come from.”

As a member of the Senate Finance Committee, and former Chairman of the State’s Streamlining Government Committee, Donahue stated, “What I deal with is the general fund. Fourteen billion of what we spend is federal [money]. We also collect the tuitions from the colleges, and pass them through to the colleges.

That counts as state revenue, but it’s not money we have to spend.”

What the state has to spend on primary and secondary education, health care, and administration “was $9 billion when I got to the legislature in 2008. Today, [after the recent budget cuts] it is now seven billion. If this tax bill passes, it would go to $4 billion

“Of that $7B, 2/3 is mandated spending.” Donahue continued, “Half of that mandated is the Minimum Foundation Formula or MFP. It goes to K-12 education.”

Donahue makes the point that after Constitutionally and Statutorily mandated spending, the state has $2.6 billion remaining to fund higher education, health care, and the Executive Budget (better known as state employee salaries). The St. Tammany Parish senator admits that some funds could be found in the statutorily mandated spending, since that only implies passing a law through the legislature. However, replacing $2.6 billion of “4$.3 billion available is not easy.”

“We need a plan to do so, and simply repealing all of the taxes without a plan is not responsible,” Donahue maintained.

Over Marionneaux’s objections, the Senate narrowly voted for Donahue’s amendment 21-17. The SCORE commission that would make recommendations to lawmakers about ways to reduce or eliminate the income tax, while accounting for the lost revenue either through proposed cuts or removal of existing tax breaks.

Marionneaux, D-Livonia, did not support the changes and pushed for a full tax repeal instead.

He argued Louisiana should join nine other states without an income tax to retain residents and attract new people to the state. He said lawmakers continue to provide tax breaks to businesses and special interest groups, rather than helping regular citizens. “We can’t ever afford it because we’re too busy up here giving the special interests tax breaks,’’ Marionneaux said. Eliminating those tax breaks, in the Democrat’s view, would be enough to offset the income tax repeal. Donahue was skeptical. The Mandeville Senator stated his hope that Marionneaux’s numbers were correct, but he thought that it was more likely that other taxes might have to be raised to make up the difference, including, perhaps, restoration of the four cents on food and utilities eliminated under the Stelly Plan.

In a vote of 35-4, the reworked income tax phase out was passed out of the Senate with the requirement that a the 13-member commission make recommendations on how to make up the estimated $2.7 billion by January 6. The recommendations, either for spending cuts or tax increases, would not be binding, but the phase out could not take effect until the next legislature put forward a plan to fill the hole in the budget that a repeal would create.

After approval from the Senate, the measure heads to the House, specifically before Rep. Hunter Greene’s Ways and Means Committee. The Chairman of the tax writing panel had proposed his own income tax phase out, but he previously put it aside in favor of Marionneaux’s bill.

Marionneaux has expressed a hope that Greene will strike the Commission provisions out, and send a “clean” bill to the Senate for reconsideration prior to the end of the legislative session, just a week and a half away.

Whether the Senate would approve such a bill, Donahue remains uncertain. Just as uncertain as to whether he would vote for the legislation without a commission in place. “I’m going to wait and see how the final bill turns out,” he said. “I think that our government is bloated and in this budget crisis, we have managed to make some significant cuts.”

However, voting for a tax phase out without “doesn’t seem to be a prudent thing to do, though I would like the result.”

Danny Martiny echoed that view. “As much as I would like to beat my chest and say I voted to repeal the income tax,” the Kenner Republican Senator told the AP, “I believe what I was sent up here to do was to try to govern responsibly. We owe it to our constituents to do this in a reasonable fashion, a prudent fashion.’’

This story originally published in the June 13, 2011 print edition of The Louisiana Weekly newspaper.