(The Center Square) – Gov. John Bel Edwards said he will review the implications of the complex tax swap the Louisiana Legislature approved during the session that ended Thursday but indicated he was likely to sign off.
“I expect to support those bills,” Edwards said.
The four-bill tax package that gained final passage on the session’s last day seeks to simplify the state’s income tax system, eliminating tax breaks while lowering rates. Taxpayers still could deduct medical expenses from their state taxes but would lose other deductions, including one for the cost of paying their federal income taxes currently enshrined in the state constitution.
Edwards, a Democrat, long has supported broadening the state’s tax base while lowering rates, though Republicans during his first term rebuffed his attempt to accomplish the same goal through different means. He said it appeared likely the state would collect nearly the same amount of money under the new proposed system compared with the current one, but his revenue secretary would review the last-minute changes to make sure.
Edwards repeatedly has said any tax overhaul needed to be “revenue neutral,” both to protect state finances and ensure Louisiana doesn’t run afoul of the federal government’s American Rescue Plan Act, which sends billions to state governments on the condition they not use the money as an excuse to cut taxes.
“I’m not trying to be coy,” Edwards said Thursday shortly after the session ended. “It would be irresponsible for me to come here and say that I know for a fact I’m going to sign those bills before we have an opportunity to take a deep dive to make sure they do what they’re supposed to do.”
While three of the tax overhaul bills await the governor’s signature, the constitutional amendment that makes the other three possible goes straight to voters, who will have their say in October. Supporters will try to convince the public to approve the Legislature’s work, which also includes centralizing oversight of sales tax collection.
“I think you’re going to see a very concerted effort by a lot of people that care about this state and want to see the antiquated tax policies that we have now improved,” said Sen. Bret Allain, the Franklin Republican who chairs his chamber’s tax committee. “I think you’re going to see a huge push by many organizations.”
At their session-ending news conference, legislative leaders touted the tax swap package along with House Bill 514, which calls for shifting hundreds of millions of dollars in vehicle sales taxes from the general fund to roads and bridges, creating a new recurring revenue stream for transportation infrastructure.
“All without raising taxes,” Senate President Page Cortez said.
The shift, however, means less money will be available for education, health care and other priorities. Edwards didn’t say he would veto HB 514, but he did express concerns.
“When the Legislature realized they couldn’t get the support among the members to pay for infrastructure investments, they decided to do it without paying for it,” Edwards said.
The federal dollars currently juicing the state’s economy have produced a “bubble” similar to the post-Hurricane Katrina recovery boom that won’t last forever, he said. Enhanced federal support for health care also will go away at some point.
And in 2025, a 0.45% state sales tax will expire. Losing the temporary sales tax and implementing HB 514 would cost the state’s general fund about $800 million a year, Edwards said.
Legislators said their tax overhaul could have a “generational” positive effect on the state, though at least some of them believe there’s more work to do even if voters approve this year’s package. Louisiana’s tax code contains billions of dollars in tax breaks that, if eliminated, could allow for reducing rates even further.
Doing so, however, is a political challenge because every tax break has a constituency ready to defend it. Legislators also established new exemptions and incentives this year while extending others. Reps. Stuart Bishop and Phillip DeVillier, both Republicans, brought bills to rein in those expenses that went nowhere.
“I can assure you that it’s not the last time that you’re going to see that bill as long as I still serve in this building,” Bishop said.