Special Interest Tax Breaks Deserve Scrutiny

Racehorses, aircraft assembled in Louisiana (with seating capacity of 50 or more) and coin bullion—but only with a value of at least $1,000. What do these three things have in common?

All are exempt from Louisiana’s 4 percent state sales tax.

None of these tax breaks mean much in the grand scale of Louisiana’s $8.1 billion general fund budget. Instead, they illustrate the often arbitrary nature of the 468 exemptions, credits, deductions and other loopholes in Louisiana’s tax code. While many of these tax breaks are popular, broad-based benefits for families and businesses, Louisiana’s tax code also is pockmarked with favors for special interests and select industries. Some exemptions are so narrowly tailored that they only benefit a handful of entities.

While a small sales tax break for coin bullion may not cost the state much in lost revenue, other exemptions—like lucrative tax credits for movie producers—can cost the state tens or even hundreds of millions of dollars per year.  Louisiana’s 468 tax exemptions not only complicate the tax code, but constitute a “hidden budget” that costs the state $4.8 billion a year. This is money that can’t be spent on education, health care or other critical services at a time when the state budget is facing annual shortfalls.

The Revenue Study Commission was established last Spring to review all tax breaks and make recommendations to the Legislature by early next year. On Friday, the RSC will resume its task of combing through the “hidden budget,” beginning with sales tax exemptions, including the three listed above (see the RSC’s agenda and the full list here).

As the RSC evaluates each tax exemption, it should keep in mind the four principles laid out by the Better Choices for a Better Louisiana (BCBL) coalition in a recent letter to the commission:

  • Is it broad-based? Tax breaks that are narrowly tailored to a specific interest group or that are claimed by a small number of beneficiaries should be viewed with more skepticism than exemptions that benefit a broad class of people. Some tax credits accrue almost exclusively to a small group of filers.
  • Do neighboring states have similar exemptions? Tax breaks that are designed to keep Louisiana competitive with other Southern states might have more merit than tax code loopholes that are unique to Louisiana.
  • Is it transparent? Hundreds of sales-tax exemptions are lumped together under a single category, “other exemptions,” leaving the public with no understanding of how much individual exemptions are costing Louisiana. Without such basic facts, neither the commission nor the public can make informed decisions about whether a tax break is performing adequately.
  • What is the state’s return on investment? State law does not require agencies that administer tax credits to track their return on investment. But taxpayers deserve to know what types of jobs, if any, are being created as a result of specific tax credits, and whether the state is receiving any other benefits.

Finally, it is important that any tax reforms be designed to raise the revenue that Louisiana needs to invest in its people and a strong economy. Otherwise, year after year of cuts to education and health care will undermine the prospects for a prosperous future.

They include details about safety-net programs like Medicaid, tax credits for low-income workers and educational scholarships and help promote a better understanding of how safety-net programs affect different communities across our state.
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