Louisiana Spotlight: Trump tax cut may be boost for budget

BATON ROUGE — Louisiana’s treasury is getting a boost to its bottom line from Washington, and it’s chipping away slightly at the size of the state’s budget gap. But even that bit of financial forecast improvement triggers disagreement in the partisan environment of Louisiana’s Capitol.
The federal tax code rewrite enacted by Congress and signed by President Donald Trump is estimated to bump up Louisiana’s tax collections by at least $200 million-plus annually.
That means the nearly $1 billion hole that had been looming on July 1 appears likely to be closer to $750 million or $800 million instead, according to calculations done by the state revenue department and state economists to take into account the congressional action.
Other states estimating a jump in their tax collections because of the federal tax changes are considering whether to return some of the money to their taxpayers. Not so in Louisiana, where that idea isn’t being floated by public officials grappling with yet another financial morass.
The money here will be used to lessen the magnitude of the state’s “fiscal cliff,” when $1 billion in temporary sales taxes passed by lawmakers in 2016 expire.
So far, that’s about the only agreement Gov. John Bel Edwards and GOP lawmakers seem to have about ways to close the gap.
The Democratic governor wants lawmakers to replace the expiring taxes in a February special session, but he hasn’t called the session yet because he’s been unable to reach an agreement on taxes with House GOP leaders.
Edwards said he’s willing to apply the increased state collections to the $1 billion, to lower the amount of taxes he wants to replace. But some Republican lawmakers are suggesting the tax collection increase could be even larger than the $200 million-plus, and they’re using it to question how much expiring tax revenue they need to offset.
One GOP leader, House Appropriations Chairman Cameron Henry, says uncertainty about the federal tax changes’ impact on the state treasury is why lawmakers shouldn’t hold a February special session on taxes.
Louisiana lets people deduct they federal income taxes they pay on their state personal income tax returns, to lower the state taxes owed. With many people expected to have lower federal income tax liabilities under the congressional tax changes, Louisiana taxpayers will have a smaller deduction on their state forms.
“We now owe more state money,” said Greg Albrecht, the Legislature’s chief economist.
In addition, federal tax changes boosting the standard deduction will change calculations for those who itemize on their state personal income tax forms.
Albrecht said he estimates Louisiana will collect an additional $226 million in personal income taxes for the upcoming 2018-19 budget year because of the changes. That’s squarely in the $200 million to $250 million range estimated by the Edwards administration.
The federal tax law rewrite also has a heavy effect on corporate taxes. But the spillover impact for Louisiana’s treasury remains unclear, Albrecht said, because of the myriad of changes and the volatility of business tax collections.
Albrecht and the state revenue department don’t have an estimate of whether corporate tax collections in Louisiana might go up.
In order to spend any new money tied to the federal tax laws, lawmakers will need the dollars to be recognized by Louisiana’s income projection panel, the Revenue Estimating Conference. Albrecht said he’ll recommend the personal income tax figure be bumped up, but not the corporate tax projections.
“I would not expect big numbers on the corporate side,” Albrecht said. “We are not closing a billion-dollar problem” with the federal tax changes.
Some House Republican lawmakers, however, have suggested the action in Washington could generate up to $400 million or $500 million annually. Henry talked of such figures in a video posted to his Facebook page touting the “Trump tax plan.”
“That’s one of the reasons that we don’t want to rush into special session. There’s a lot of unknowns,” Henry said.
Those numbers don’t appear to be backed up by state revenue data or economic analysis so far, but they seem to be factoring into the state’s budget and tax debate anyway.
Melinda Deslatte has covered Louisiana politics for The Associated Press since 2000. Follow her at http://twitter.com/melindadeslatte