(The Center Square) – The Louisiana House endorsed a pair of bills Monday that would cut tax rates for some corporations while eliminating a major corporate tax break for paying federal income taxes.
The tax swap is part of a broader effort to simplify and streamline the state’s tax structure and would decouple state tax policy from the federal government’s, though some lawmakers said they were concerned about raising taxes on smaller companies.
House Bill 292 by Rep. Neil Riser, R-Columbia, calls for repealing the corporate tax break for federal income taxes paid. The deduction is enshrined in the state constitution, which means at least two-thirds of the legislators in each chamber and a majority of voters would have to approve the change. House Bill 275, which contains the amendment, is awaiting a hearing in the House’s Civil Law Committee.
The Legislative Fiscal Office estimated eliminating the deduction would generate more than $276 million for state finances over five years. Killing the tax break is a key part of a larger movement this year to broaden the state’s tax base and lower tax rates.
Under the current situation, a tax cut at the federal level creates a windfall for the state, but when federal taxes go up, as may well happen under the current Congress and president, it creates a state shortfall.
“The reason for this is to bring stability back to the budget,” Riser said.
Members approved HB 292 with a 75-22 vote.
Riser’s House Bill 293 calls for a “flat” corporate income tax, replacing the current five tax brackets ranging from 4% to 8% for different amounts of income with a single rate. The bill originally proposed a 6% rate; lawmakers amended it Monday to call for a 6.5% rate in hopes of achieving a tax swap that comes closer to bringing in the same amount of revenue.
The tax swap would cost state finances more than $365 million over five years, according to a Fiscal Office estimate based on the 6% rate. The office has not yet created a fiscal note for the 6.5% rate.
Democratic Gov. John Bel Edwards has said he supports broadening the state’s tax base and lowering the rates, which he tried to do during his first term, but insists the new system should raise as much money as the current structure in order to avoid causing budget shortfalls. Lawmakers also are concerned about running afoul of the terms of the federal American Rescue Plan, which is sending billions to state and local governments but says governments should not use that money to fill revenue holes created by tax cuts.
The federal government has not issued all of the rules governing the ARP.
Some lawmakers said the two bills would cut tax rates for larger corporations but raise tax rates on smaller companies that currently pay at the 6% rate or less, which also would lose their federal tax break in the deal.
“This looks like a fairly significant tax increase to some of our constituents,” said Rep. Alan Seabaugh, R-Shreveport.
House members voted 87-12 to send HB 293 to the Senate.