PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

State of the Week: Louisiana

By at 7 May, 2017, 7:40 am

 

How NOT To Do Tax Reform

by Raymond J. Keating-

Small Business Policy Index 2017: Louisiana ranked 22nd among the 50 states.

SBE Council’s “Small Business Policy Index 2017” ranks the 50 states according to 55 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2016: Louisiana ranked 22nd among the 50 states.

SBE Council’s “Small Business Tax Index 2016” ranks the states according to 25 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.

The Governor’s Tax Plan

When it comes to public policies affecting entrepreneurship, small business and investment, Louisiana, as illustrated by its ranking of 22nd on both the “Small Business Policy Index 2017” and the “Small Business Tax Index 2016,” is a state that is just ahead of the middle of the pack. Unfortunately, a proposed tax reform plan from Governor John Bel Edwards would push the state back – making it costlier for small business – rather than forward.

At first glance, there would seem to be some clear positives in terms of reducing personal and corporate income tax rates. For example, the top individual income tax rate would decline 6 percent to 5 percent, and the top corporate rate from 8 percent to 7 percent. Well, not really. Louisiana allows for the deductibility of federal income taxes paid by both individuals and corporations, and those deductions would be eliminated under the Governor’s plan. Therefore, the actual tax rates would increase – and rather sizeable increases at that.

Also, while allowing a 1 percentage point sales tax increase to expire as planned at the end of next year, the sales tax base would be expanded, to include, for example, cable television and digital streaming services, like Netflix.

But there’s still more, as the Governor’s plan imposes a new gross receipts tax on businesses, whereby businesses would pay the higher of either a 0.35 percent gross receipts tax or the corporate income tax.

In the end, Governor John Bel Edwards’ tax reform plan is nothing more than a tax increase that also lays the groundwork for future tax increases.

Fortunately, the Governor’s plan has died in the state legislature – in particular the gross receipts tax. Alternatives are now being discussed. At least one Republican – State Rep. Kenny Harvard – is looking to hike taxes by some $200 million a year. A “profit margins tax” on state businesses, and extending the sales tax (and including cable and digital streaming services), are also back on the agenda.

If a state is interested in how NOT to do tax reform, Louisiana serves as a glaring example. Tax reform should be about tax relief, and making a state more competitive and hospitable for small business and investment. Looking for ways to increase taxes does precisely the opposite.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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