Income

Louisiana governor Bobby Jindal introduced his plan to eliminate income taxes, his office announced. 

"At a joint meeting of the House Ways & Means Committee and the Senate Revenue & Fiscal Affairs Committee, Governor Bobby Jindal unveiled his administration’s proposal to eliminate income taxes and stressed that the proposal will lead to more job opportunities for Louisianians. Following months of meetings with legislators and stakeholders across the state, Governor Jindal presented a plan that eliminates income taxes in a revenue neutral manner by eliminating over 200 tax loopholes and broadening the state sales tax base," the Louisiana governor's office says in a press release. 

Here's how his office summarizes the plan: 

The proposal will create a simplified tax system to accelerate job creation and business growth in Louisiana. Despite one of the lowest state/local tax burdens in the country, Louisiana’s tax structure often is poorly perceived because of its complexity. By levying nearly all major tax types including personal and corporate income taxes, Louisiana’s current tax climate results in competitive disadvantages for businesses and individuals by penalizing hard work and increased earnings. The plan will transform Louisiana’s tax system into a model that is simple, stable, and modern. The plan will eliminate two major tax types: personal income tax and corporate income and franchise tax. Eliminating income taxes in a revenue-neutral manner and improving sales tax administration will dramatically simplify Louisiana’s tax system and reduce administrative problems for families and small businesses. The effective start date of the program is January 1, 2014.  The plan will ensure revenue neutrality by:

• Eliminating~$2.7 Billion in personal income tax and corporate income and franchise tax
• Eliminating over 200 exemptions, resulting in $114 Million in additional revenue
• Broadening the state sales tax base and raising the state rate to 5.88%, which will result in ~$2.1 billion in revenue 
• Maintaining vital local tax offsets and business competitiveness incentives
• Implementing targeted tax offsets, including a change in the cigarette tax rate, and tightening severance tax exemptions

To keep the sales tax rate as low as possible, the plan will expand the sales tax base to many services that are already taxed in other states in addition to eliminating over 200 current exemptions. Many of these exemptions are no longer relevant since they were related to the personal income tax and/or corporate income and franchise tax.  Reducing the number of tax exemptions has many benefits, including limiting the state sales tax rate increase required to generate sufficient revenue and greater stability in revenues. The sales tax exemptions retained under the plan will help protect low-income residents and also preserve Louisiana’s business competitiveness. These include:

• Constitutionally protected sales tax exemptions, including food for home consumption, residential utilities, prescription drugs and fuel.  
• Manufacturing, machinery, and equipment (MM&E), non-residential utilities, farm and agriculture, drilling rigs, vessels greater than 50 tons, tangible personal property for lease or rental, manufacturers’ rebates and trade-in value on new vehicle purchases, and preservation/rehabilitation of historic structures. 
• Exemptions for vendors compensations 
• Exemptions for certain non-profit organizations (religious, military, disabled)
• Sales tax exemptions on purchases whose cost is already borne by the taxpayer: those made by federal, state and local governments. 

The services added to the state sales tax base include personal, professional and other services that are currently excluded from the state sales tax base. The services that will be excluded include healthcare, education, construction, real estate, financial services, legal services, oil and gas services, and funerals. The purchase of advertisement (“buys”) will be excluded. The plan will also protect small service providers by creating a “de minimis” exemption that will exclude any service providers with annual revenue under $10,000. The plan will also modify some severance tax exemptions.  As part of achieving simplification of Louisiana’s tax structure on a revenue neutral basis, Louisiana’s excise tax rate on cigarettes ($0.36) would rise to match the Texas rate ($1.41), factoring in a 40 percent discount for behavioral changes. Additionally, the current variable rate for other tobacco products would rise to match the Arkansas rate of 68 percent of manufacturer’s price.  The proposal will include a tax amnesty plan. Tax amnesty will help accelerate collections for delinquent accounts for individuals and businesses related to tax types that are proposed for elimination and also help foster the transition and implementation into the new tax structure. 

Democratic National Committee chief Debbie Wasserman Schultz has been called on to release her personal income tax returns. The request was made by her congressional opponent, Republican Karen Harrington of Florida.

Last year’s unsurprisingly dismal budget numbers contain a surprising revenue story.  While overall federal revenue fell precipitously, payroll tax revenue barely dipped at all.  This divergent tale of two taxes has one conclusion but many implications.  America’s tax system, decidedly tilted toward upper income earners, is precariously balanced.  It is not only volatile in economic downturns – it is unsustainable long term.