Jindal details plan for eliminating Louisiana income tax

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March 15, 2013


By Phil Sletten

BATON ROUGE, Louisiana: Louisiana Governor Bobby Jindal (R) added details to his tax reform proposal on Thursday. At a joint hearing of the House Ways and Means Committee and the Senate Revenue & Fiscal Affairs Committee, Jindal presented the outline of the major reforms, which included the elimination of the personal and corporate income taxes paid for by increasing the sales tax. Although no legislation has been filed and some details are still unclear, Jindal told the committee that the plan is revenue neutral and that none of the plans are "etched in stone."[1]

The plan would increase eliminate nearly $3 billion in revenue from the personal and corporate income taxes and increase the statewide sales tax from 4 percent to 5.88 percent. About 37 different categories of services currently exempt from the sales tax, including landscaping, dog grooming, insurance, cable television and telecommunications, business consulting, and veterinarian appointments, would be subject to sales taxes. These new taxes on services would likely generate an additional $1.4 billion in revenue for the state. The tax on cigarettes and other tobacco products would rise from $0.36 to $1.41 per pack. Governor Jindal said that over 200 tax breaks, including 130 from the income tax code, would be eliminated.[1][2]

The higher sales tax rate, combined with the sales taxes levied by local governments, would put the average sales tax burden at between 10 and 11 percent. Louisiana would have the highest sales tax burden in the nation, but would also become only the tenth state to have no income tax.[1][3]

Skeptics of Governor Jindal's proposal to eliminate income taxes and increase the sales tax, which he announced his intention to do in January, have argued that the new tax system would be regressive and give tax breaks to higher-income citizens at the expense of lower income earners. These concerns were repeated today, notably by House Democratic caucus chair and likely gubernatorial candidate John Edwards (D), who said the proposal would create the "most regressive tax structure in the nation."[1] A January analysis of Governor Jindal's basic proposal from the Institute for Taxation and Economic Policy suggested that shifting from income taxes to the sale tax would increase the tax burden for 80 percent of Louisianans.[4]

Governor Jindal sought to allay these concerns in his presentation and through his staff during later questioning.[5] His aides noted that the proposal calls for a quarterly rebate of up to $175 annually per household earning less than $20,000 a year, depending on the number of children and exact income levels.[6] Jindal's aides also said that retirees with income up to $60,000 a year would also qualify for rebates, but did not elaborate on that part of the plan.[1][2] The Jindal administration released an analysis showing taxes would go down for all Louisiana citizens, ranging from an $18 reduction for a single person household earning under $20,000 to $5,154 for those earning over $100,000.[1] Middle income taxpayers would save approximately $450, according to the analysis.[3]

The Tax Foundation, a nonpartisan think tank promoting simple, broad-based, stable tax codes from their Washington D.C. headquarters, noted that the proposal would likely push the state from the low ranking of 32nd to fourth place on their Business Climate Index.[1] The president and director for state affairs of Americans for Tax Reform, an organization opposing tax increases, co-authored a column praising Governor Jindal for supporting a plan that would promote business development and "make the tax code more efficient and competitive."[7][2]

However, some state legislators reacted with skepticism, noting that the details of the plan were not fully released.[5] Some political commentators questioned the plan's chances, while others suggested the proposal may change significantly over the course of the legislative session.[8][5][3]

Governor Jindal's plan also calls for a tax court, comprised of three elected judges, to provide efficient and effective decision-making on all disputes regarding state and local tax law.[9]

See also