Last week, the Senate Finance Committee passed SB 177 by Sen. Robert Adley, which would put forth a constitutional amendment that would eliminate the state’s inventory tax credit by eliminating inventory’s taxation, as a result raising over $500 million that could go to reducing a shortfall in the $1.6 billion range. The problem is that this would cost local governments almost 80 percent of that and business the remainder, although Adley assured local governments that some way would be concocted to allow them to recapture that revenue but provided no details.
Gov. Bobby Jindal supports eliminating the credit that is refundable, but not the portion that is used to offset corporate income and franchise taxes. However, as it is a constitutional amendment, he has no direct impact on the bill’s passage, which requires a two-thirds vote in each chamber. He has promised retaliation on a strategy of suspending tax exemptions, which the Legislature can do by resolutions that he can’t veto by a two-thirds vote, by vetoing a budget that relies on them, but they can override that by a two-thirds vote.
Meanwhile, today the House Ways and Means Committee considered several items that together also could have raised in the area of $500 million, which includes getting rid of other refundable tax credits, raising the cigarette tax, adjustments to deductions for income taxes, and hastening the end of the solar credit. Half would have come from the cigarette tax, HB 119 by state Rep. Harold Ritchie, which Jindal has said he would not support unless it became a vehicle for funding a tax credit for families paying higher education expenses, but that got amended down almost $200 million in committee, even as another amendment steered that money, quite properly, to fund Medicaid (as smoking-related conditions cost the state’s Medicaid program over $800 million annually) that could leverage more federal money for Medicaid. Other measures are scheduled this week, including one that would trigger a big reduction to the Motion Picture Investor Tax Credit, for which Jindal has yet to express support, that could close the gap more.
SB 177 at this point presents way too many uncertainties. It seems unlikely that it can get the two-thirds votes needed to pass to voters unless local governments get back revenues that they would lose under the bill and even if it could the public well could vote it down if local governments cry that property owners will get hit with huge tax increases within two months should it pass. Yet conjuring a way to allow local governments to keep these revenues without tax increases seems like pulling a rabbit from a hat at this point.
And while Jindal favors some measures that appeared in front of the House panel, the cigarette tax increase proceeds flowing straight into a form that does not produce a revenue-neutral outcome seems primed for a veto from him. In other words, for these measures to combine and wipe out much of the shortfall, all of the governor, local government, business, and taxpayer advocates must get on the same page for the package to succeed. Given their differing and in crucial ways contradictory attitudes, that does not seem likely.
Which means at least one of these entities will end up with the short end of the stick where raw political power must overcome them. Making the matter more interesting, the various centers of power may have enough of that to veto actions by the other. If that is the actual picture, then stalemate occurs and nothing gets done, until pressure builds that shifts power away from some and towards others of these centers that then enables them to impose their wills on the recalcitrant ones.
Policy-makers need to understand that in this environment that a grand bargain cannot occur that makes everybody reasonably happy; somebody’s going to get the shaft and feel none too pleased about it. Who that might be remains to be seen, but it will be somebody or some interest.