Sales tax increase among proposed budget fixes

Gov. Edwards proposes sales, tobacco tax increase to reduce $750M state budget shortfall

BATON ROUGE, LA (WAFB) - Before lawmakers can address the predicted $1.9 billion short fall in next year's budget, they first have to come up with $750 million to overcome this year's shortfall. And, they have to do it fast, before the current fiscal year ends in June.

"The need for additional revenue is now and it's acute," said Governor John Bel Edwards.

Edwards and his top budget team laid out their proposal to address the budget shortfalls Tuesday afternoon. According to Edwards, the most urgent is fixing the short term problem. He presented four main steps to do that:

  • Pulling $128 million from the state's Rainy Day Fund
  • Redirecting $200 million of non-coastal dollars from the first year of BP oil spill payments to the state
  • Cutting at least 10 percent from $1.6 billion in discretionary state funds that are dedicated to certain uses in statue, but not constitutionally protected, to generate $160 million.

"Short term fixes are going to require some drastic moves both on the revenue side and on the spending side," said Commissioner of Administration Jay Dardenne.

To generate new revenue for the remaining deficit, the administration is proposing a one-cent sales tax increase, excluding groceries, prescription drugs or residential utilities.

The governor said they proposed the sales tax increase because it can be enacted and collected quickly, he hopes by April, unlike other tax changes.

"The only way to access revenue that we need in order to stave off these horrendous cuts in terms of the current mid-year require a sales tax bridge," said Edwards.

So, just how bad is the $750 million, mid-year hole? Louisiana Budget Project Director Jan Moller explains that it is more than the state spends on all of higher education.

"If you shut down higher education in this state tomorrow, you still wouldn't save enough money to deal with the current fiscal crisis," said Moller.

With that in mind, Moller said the proposals are not unexpected. Moller added, while a sales tax increase is not ideal, the alternative would could be much worse.

"We have bills to pay through June 30 of this fiscal year and they're very few options available of what to do," said Moller.

However, State Treasurer John Kennedy believes increasing taxes should be a last resort and that the main problem is not necessarily a lack of revenue.

"It's the spending, stupid. I mean, look, I anticipate the Governor will propose a tax increase and anticipate the legislature will go along with it. I think that's unfortunate," said Kennedy.

Kennedy worries any new taxes could hurt an already fragile economy. He said the state should look for savings throughout the budget first. His examples include trimming state contracts and streamlining personnel management.

"You're not going to convince me that we can't save money in this budget," said Kennedy. "I think we have a moral obligation to tax payers of this state to do that before we even talk about taxes."

For the long term fixes, the administration presented what they described as a "menu of options" for lawmakers. Those include:

  • Changes to the income tax brackets in Louisiana
  • Cuts in the percentage of federal excess itemized deductions Louisiana taxpayers can deduct on their state tax returns
  • A proposed constitutional amendment to eliminate the deduction for federal income taxes paid in exchange for lowering individual and corporate tax rates.

All fiscal decisions will have to be decided in a special session, which is expected to begin next month after Mardi Gras.

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