Tax System Study Offers No Miracle Cure

Mar 11, 2015

Tulane economist Steven Sheffrin (L) and LSU economist Jim Richardson (R) present tax study

Anticipating the coming fiscal year’s massive shortfall, Louisiana’s legislature commissioned a comprehensive analysis of the state’s entire tax structure. That report was delivered Tuesday.

“Do we have the right tax structure for 2015 and on?” LSU economist Jim Richardson said was the main question being considered. “It’s a tax structure we put in place in 1973.”

Richardson, along with Tulane economists Steven Sheffrin and James Alm, gave lawmakers a full-scale plan for making Louisiana’s revenue sources more sustainable. Richardson warned doing so wouldn’t be quick.

“Tax reform is a multi-year process,” he told the combined meeting of House Ways and Means and Senate Revenue and Fiscal Affairs committees.

For example, the study urges putting three to five-year sunset dates on tax credits and exemptions, so they can be reviewed and evaluated for effectiveness.

“This exemption or credit will go away unless the legislature does something to say, ‘You know, we really like it. We need it. It’s important’,” Richardson explained.

The report, which says Louisiana derives nearly 60-percent of its revenue from sales taxes and personal income taxes, suggested lowering personal income tax rates, but eliminating excess itemized deductions. It also suggests moving to a single corporate tax rate of five percent, and removing the business inventory tax entirely. Because these changes can impact local government revenues, they’ll need to be phased in over three to five years.

“As much as we can talk about it up here all day—we can say, ‘This is so great!’—it’s got to go through a very deliberate process…of you. And that takes time,” Richardson stated.

Apparently this wasn’t the miracle Rep. Chris Broadwater of Hammond was hoping the report would provide.

“Your recommendations are an implementation plan of three to five years?” Broadwater asked. “But if you’re giving advice to us, what are the sensible things that we can do that provide us a good start—that we can do in three to five weeks?”

Richardson shook his head, saying, “In an ideal world, we’ll all come in and in 90 days do everything and be happy. I don’t see the world working quite that way.”