House Democrats reverse course, back GOP-pushed tax swap
FILE - In this April 12, 2021 file photo, Sen. Katrina Jackson, D-Monroe, talks with Stuart Bishop, R-Lafayette, chairman of the House Ways and Means Committee, during opening day of the Louisiana legislative session in Baton Rouge, La. Republican House leaders planned to try again Thursday, May 20 to pass a complicated income tax swap that is the centerpiece of a bid to overhaul Louisiana’s tax structure, hoping to salvage the effort as time runs short in the legislative session. (AP Photo/Gerald Herbert, File)
BATON ROUGE, La. (AP) — The Louisiana House on Thursday backed a complicated income tax swap that is the centerpiece of Republican leaders’ bid to overhaul the state’s tax structure, boosting the possibility that lawmakers can strike a final deal on the effort before time runs out in the legislative session.
The constitutional amendment is part of a push to get rid of a tax deduction for federal income taxes paid in exchange for lowering personal income tax rates. The proposal fell four votes short Wednesday, with Democrats blocking passage. But it won overwhelming support in a 98-2 vote Thursday, after Republican House leaders held behind-the-scenes talks with Democrats.
“This is one of the first steps in true, comprehensive tax reform that we have tried to do for decades, several, several decades, and I want to thank all of you,” said Rep. Stuart Bishop, the Lafayette Republican who chairs the House tax committee.
Democrats who initially withheld support wanted backing for tax breaks aimed at helping low- and moderate-income residents. Rep. Ted James, the Baton Rouge Democrat who leads the Legislative Black Caucus, said Democrats gained traction on that effort in closed-door negotiations Wednesday night and Thursday morning with Republican House Speaker Clay Schexnayder.
“We finally feel more comfortable that they’re working in good faith with us on some of our priorities,” James said.
In addition, he said Democrats “generally agreed” that the tax swap was good tax policy.
The amendment required a two-thirds vote, and the GOP doesn’t have enough members to pass it without support from no-party or Democratic lawmakers.
Republican legislative leaders started the session in April planning a widespread revamp of Louisiana’s tax laws, which have been criticized as unnecessarily complex by tax experts, government watchdog groups and economists.
House feuds over a variety of issues stalled debate on key tax bills for weeks, and some tax measures already have been scrapped. Only three weeks remain in the session, and the House-backed bills still need hearings and votes in the Senate to reach the governor. They’d also need support from voters in an upcoming election.
“If we don’t get it done this year, I don’t know if we ever get it done,” Bishop said.
Gov. John Bel Edwards said he’ll only support a tax package that doesn’t lessen the dollars flowing into the state treasury. Also, a provision in the latest federal coronavirus aid legislation won’t allow the assistance to flow to states that cut taxes. Republican legislative leaders said they intend to keep tax collections at their current levels as much as possible.
Efforts to get rid of special interest tax breaks appear dead, along with an attempt to get rid of the corporate franchise tax. But a temporary exemption from the franchise tax for small businesses seems poised to pass.
Republican leaders are still pushing tax swap measures to disentangle Louisiana corporate and personal tax collections from federal tax collections.
Louisiana allows taxpayers to deduct the federal income taxes they pay from the computation of their state income taxes. When federal income taxes go up, Louisiana collects less in state taxes. When federal income taxes go down, state income tax collections rise. That leaves Louisiana tax collections subject to decisions out of the state’s control.
The bill to set the lower income tax rates and remove the corresponding tax deduction won House passage Wednesday night. It pairs with the constitutional amendment that passed Thursday.
In exchange for losing the tax break for federal taxes paid, taxpayers would receive a 1.85% personal income tax rate on the first $12,500 of net income, down from 2%. The tax rate for the next $37,500 of income would fall from 4% to 3.5%, and the rate for income above $50,000 would drop from 6% to 4.25%.
Republicans added a provision by Covington Rep. Mark Wright that would further drop the personal income tax rates if the state’s tax collections hit a certain level of growth in the future. It was unclear how those reductions would be spread across three different brackets.
The House has passed a pair of corporate tax swap bills by Rep. Neil Riser, a Columbia Republican, that await debate in the Senate. But the constitutional amendment to allow those provisions to work awaits debate on the House floor.
Those measures would set a flat corporate income tax rate of 6.5%, doing away with current rates that range from 4% to 8%. In exchange for the flat tax rate, companies would lose the ability to deduct the federal income taxes they pay from their state taxes.
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