Minden Press-Herald

Oct 01st

Swapping Taxes

Rep Reynolds newLegslators face tax reform issues at session

Swapping state income taxes for higher sales taxes is just one budget issue state legislators will face when they head to Baton Rouge for the 2013 session.

District 10 Rep. Gene Reynolds, D-Minden, said he knows of at least two possible bills that may be filed addressing tax reform.

"The first bill would be the 'Tax Swap,'" Reynolds said. "It repeals personal income tax, corporate income tax and franchise tax."

Removing that money will take more than $3 billion from state coffers.

"We would have to come up with that much money to put back in order to be 'revenue neutral,'" he said. "So, we would have to raise the state sales tax – we would need to double it, going from four percent to eight percent."

Reynolds recently met with Gov. Bobby Jindal and Tim Barfield, head of the state Department of Revenue where they discussed how to accomplish that.

"They told me they don't want to double state sales taxes," Reynolds said. "What they are proposing would take the state sales tax from four to 5.78 percent. Do the math. That's not nearly enough to reach the $3 billion."

That being the case, Reynolds said the administration is also considering eliminating tax exemptions.

"One of those would be the severance tax exemption," he said. "That's oil and gas – horizontal drilling. I told them I didn't think I could do that. In north Louisiana, we rely heavily on that business and will in the future."

But every tax exemption is on the table, Reynolds stressed. The number exceeds 450 and would total around $9 billion.

A list of tax exemptions can be found at www.rev.state.la.us.

Another way to make up money lost by eliminating income tax would be to broaden the tax base to include services.

"So any kind of service would be taxed – like haircuts, for instance," Reynolds said. "The businesses would have to charge sales tax for their service and remit those to the state.

"Texas did this, and they have an extensive list of services," he continued. "It would include a lot of things."
Reynolds said Jindal and Barfield told him they are considering a modified earned income tax credit to offset the loss to low-income and retired persons.

"A certain amount of money would be set aside and the legislature would determine how it will be reestablished to the low income and retirees," he said.

"So they are not out any extra money."

Raising the cigarette tax by 36 cents is also on the governor's reform agenda, taking it from $1.05 to $1.41.

Reynolds said the second bill pitched by Jindal and Barfield piggy-backs the first one with one addition – Internet sales tax collection.

"At the federal level, there is a bill in Congress right now that would allow states to start collecting Internet sales tax," he said. "If that's going to come to pass, we need to get ready for that."

To do so would require uniformity and another governmental body.

"The problem is, you have all these parishes with all these different sales tax rates, and it has to be uniform," Reynolds said. "There has to be a single tax-collecting body.

"What they are proposing is to create a state and local sales tax commission," he continued. "A multi-member board with nine to 13 members appointed by the governor and approved by the senate."

The commission would be responsible for making the sales tax in all parishes equal to the state sales tax.

"If you exempt something locally, you exempt it to the state," Reynolds explained. "If you charge it here (locally), you charge it to the state. The collecting entities would be passé. It would all be collected by the commission.

"When and if the Internet tax is passed, this board would be established and immediately start collecting it," he continued. "Sales tax revenue would then be returned to the parish entities like school board, police jury and so forth."

According to the Department of Revenue, in 2012 the state lost about $500 million in Internet sales tax revenue.

"If we get that money, and don't need it in order to be revenue neutral, then we could lower all sales tax," said Reynolds. "If we aren't revenue neutral, the commission would have the authority to bump up the sales tax without the voters' approval. I don't like that."

But, none of these tax reform options are set in stone, Reynolds stressed.

"It will change. It will be quite a battle," he said. "The way I left it with the governor was, I am open to suggestions that would make the tax issue better.

Sure, if this happens there would not be an income tax, but other than that, we are creating a lot more problems. You have a lot of businesses that depend on tax exemptions."

The governor's budget will be introduced Friday, and Reynolds said he will be in Baton Rouge for the unveiling. Afterward, Ways and Means and the Budget Committee will begin work.

"There will be a lot of cuts in the new budget," Reynolds said "It's going to be a really tough budget.

Reynolds said he will meet Saturday with a budget reform group comprised of other representatives from the House.

"They are looking for ways to stop cutting higher education and health and hospitals so much," he said. "They will have a series of bills and constitutional amendments.

"Basically, they want to have a transparent budget process where long before we go home from the session, we are absolutely sure the budget is balanced, and we won't have the mid-year cuts that have killed higher ed."

Reynolds said in past years, the Jindal administration has overestimated the amount of revenue in the budget.

"We (legislators) would balance the budget and then two weeks later find out there is going to be a deficit," he said. "If you declare a deficit, the governor has the right to go in there and cut what he wants without asking the legislators. That's a frustration with us, and it has happened every year for the last five years."






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