No state income tax? Beware of lawmakers’ stances on election-year tax cuts

With extensive experience in state government, including as lieutenant governor, Jay Dardenne’s resume is long. But a former function is particularly relevant to his current work: he served as chairman of the Senate Finance Committee, a central position in the development of the annual state budget.

Dardenne is now Commissioner of the Division of Administration, essentially Governor John Bel Edwards’ budget chief, so he knows the minefield as well as anyone.

Dardenne noted at a higher education council meeting that 2023 is both an election year and a fiscal session. The political calendar will include races for governor and legislature seats, and some lawmakers will be in their last session before term limits force them out.

“You’re going to have a lot of postures,” Dardenne said. “We don’t think the legislature should take dramatic action on tax reform.”

The House Ways and Means Committee recently launched a seven-month study of the possibility of eliminating state income tax. Rep. Richard Nelson, R-Mandeville and other backers note that fast-growing states like Texas and Florida have no income tax.

“Where are you going to replace this huge amount of revenue that is shivering in the state budget? Dardenne asked.

This is a very pertinent question.

Overall, as the nonpartisan but conservative Tax Foundation reports, Louisiana, Texas and Florida rank on par with relatively low-tax states when state and local costs are calculated together. But states have very different ways of getting money.

The replacement of state income tax has already been discussed. But unless the state wants to slash colleges and health care, income tax is a must today.

Sales taxes in Louisiana are already a constant contender for the highest in the country. Property taxes are very low in Louisiana compared to Texas and Florida, two states highly envied during the Ways and Means Committee hearings.

Dardenne said the Legislature’s discussion must include how the state would replace the approximately $5 billion in annual revenue currently generated by personal and corporate income taxes.

“Where are you going to replace this huge amount of revenue that is shivering in the state budget? Dardenne asked.

Again, Dardenne knows the score. Income tax revenue paid into the general state fund is the main source of funding. This is obscured by the overall state budget of $39 billion – which makes a $5 billion cut seem small.

This is not the case: much of this money comes from federal funds, which must be used for specific purposes and cannot provide general state services. And much of the rest is passed on money, because things like tuition paid by students to the state government are accounted for in the budget but cannot – and should not – be used to other purposes.

Much of the general fund is dedicated itself, through the state’s minimum core curriculum for public schools. While in theory it’s possible to cut funding to schools, it has never been done — and for good reason, as education must be Louisiana’s spending priority.

When income tax was previously targeted, about a decade ago in Governor Bobby Jindal’s administration, sales tax was seen as an alternative source of revenue. Sales taxes would have had to be raised to huge levels to make up the difference, so the idea was quickly dropped.

To move to a more Texas-like system, property tax miles would need to be raised to unprecedented levels in Louisiana. Since property taxes are politically unpopular, legislators are unlikely to enact sweeping change.

Unless, as the old pro Dardenne observed, the election-year posture spins out of control. Let’s hope not.

— The Advocate, September 30

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