#1Presentation to Task Force on Structural Change The Evolution of the Louisiana Tax Structure Dr. Jim Richardson Alumni Professor of Economics and Public Administration Louisiana State University And Dr. Greg Upton Assistant Professor Center for Energy Studies Louisiana State University LSU Center for Energy Studies Assisted by Mr. Nathan Babb Class of 2016 Louisiana State University LSU E. J. Ourso College of Business Public Administration Institute#2HISTORY OF LOUISIANA TAX STRUCTURE, 1964 THROUGH 2020 Data made available by Mr. Greg Albrecht, Louisiana Legislative Fiscal Office#3Billions of Dollars 2 3 4 Excise Louisiana Tax Revenues by Source Sales PIT CIFT Minerals Gasoline Other Gaming 1970 1980 1990 2000 2010 2020 Year#4Notable Tax Changes Affecting Louisiana Tax Collections . 1970 . Sales tax increase from 2 to 3% 1973 - Increase oil and gas taxes; reduction in sales taxes and PIT • 1977 – Increase in Corporate Income Tax - • 1980 - reduction in PIT; increased Homestead . Exemption • 1983 - increase in PIT . . . • - 1984 increase in sales tax, gasoline, tobacco, franchise, insurance 1986 Federal Tax Reform Act of 1986 - 1987-88 increase sales tax-eliminated sales tax - exemptions--temporary for over 15 years#5. - Notable Tax Changes Continued 1990s gaming (done from 1990 to 1995) - 1990s initiated Inventory Ad Valorem Tax Credit 2001/2003 Federal Tax Cuts - 2002 - Stelly: switch from Sales to PIT • 2002 – Louisiana Motion Picture Tax Incentive - - 2004 initiated phase out of MME for Sales Tax from 2004 to 2010 2007 – initiated Louisiana Earned Income Tax Credit - • 2007 and 2008 - reduction in PIT#6History of Income Tax Brackets for Joint Filers (single filer) Pre 2002 (% of excess itemized deductions allowed) 2%; $0 to $20,000 ($0 to $10,000) 4%; $20,000 to $100,000 ($10,000 to $50,000) 6%, over $100,000 (over $50,000) 2003 to 2008 (no deduction of excess itemized deductions) 2%; $0 to $25,000 ($0 to $12,500) 4%; $25,000 to $50,000 ($12,500 to $25,000) 6%, over $50,000 (over $25,000) Post 2008 (100% deduction of Excess itemized deductions) 2%; $0 to $25,000 ($0 to $12,500) 4%; $25,000 to $100,000 ($12,500 to $50,000) 6%, over $100,000 (over $50,000)#7• Also in 2002, the electorate voted to place a constitutional prohibition against sales tax on: . . . . ● Food purchased for consumption at home Natural Gas Electricity Water sold directly to consumers for residential use Prescription Drugs In 2002, the state increased income taxes and decreased sales taxes. In 2007/2008, the state decreased income taxes back to rates similar to pre-2003 and but made no change to sales taxes.#8Notable Tax Changes Continued 2015 - change in tax credits, tobacco 2016 sales tax rate, exemptions, tobacco, - liquor, wine, and beer • 2016 - changes in corporate income tax with add back and other changes • 2016 - on ballot proposal to eliminate federal deductibility for corporations with rate of 6.5% as opposed to current structure of 4% to 8% with 8% starting at $200,000#9State-Local Tax Burdens by State State-Local Tax Burdens as a Percentage of State Income, FY 2012 WA 9.3% #28 MT ND 8.7% 9.0% VT 10.3% #11 NH 7.9% #44 ME 10.2% #13 #38 OR #33 10.3% #10 ID MN 10.8% 9.3% SD #8 WI #26 7.1% WY 11.0% NY 12.7% #1 MI #49 #4 7.1% 9.4% #48 IA #25 PA NE 9.2% NV 8.1% 9.2% #31 OH 10.2% #15 IL UT #30 IN 9.8% CA #43 9.6% CO 11.0% 11.0% #5 9.5% #19 MA 10.3% #12 WV VA #21 8.9% #22 #6 KS MO 9.8% 9.3% #35 9.5% 9.3% #18 KY #27 RI 10.8% #9 #23 #29 9.5% #24 NC 7.3% 9.8% #20 CT 12.6% #2 AZ OK TN #47 NM 8.8% 8.6% AR SC 8.7% #36 #40 10.1% 8.4% NJ 12.2% #3 #37 #17 MS AL GA #42 8.6% 8.7% 9.1% TX 7.6% #41 #39 #32 #46 LA 7.6% #45 AK 6.5% #50 FL 78.9% #34 DE 10.2% #16 MD 10.9% #7 DC 10.6% (#10) HI 10.2% #14 Note: As a unique state-local entity, Washington, DC is not included in rankings, but the figure in parentheses shows where it would rank. Source: Tax Foundation calculations, U.S. Census Bureau, Rockefeller Institute, Bureau of Economic Analysis, Council on State Taxation, and Travel Industry Association. TAX FOUNDATION Lower State-Local Tax Burden as a Percentage of State Income Higher @TaxFoundation#10Louisiana 1982 Revenue Shares by Source In 1982, mineral revenues peaked at 42 percent of total state revenues. Gasoline Excise Corporate Other Income Personal Income Tax was about 5 percent of Louisiana revenues. Minerals Sales#11In FY 2008, mineral revenues were at a recent high of 16 percent of total state revenues. Sales and PIT made up 53 percent of total revenues. Louisiana 2008 Revenue Shares by Source Other Gaming Income Gasoline Excise Corporate Minerals Sales#12In the FY 2015, mineral Louisiana 2015 Revenue Shares by Source revenues were less Gaming than 10 percent of total revenues. Gasoline Sales and PIT making up 57 percent of total revenues. Excise Corporate Other Income Minerals Sales#13Louisiana 2018 Revenue Shares by Source In FYs 2017 and 2018, the two years before the tax increases go off the books, sales taxes will make up an estimated 36 percent of total revenues. This will be the highest share of state revenues made up by sales tax in Louisiana's history. Gaming Gasoline Excise Corporate Minerals Other Income Sales#14Percent of Total 0% 10% 20% 30% 40% 50% 60% Louisiana State Budget and Mineral Revenues 1970 1980 1990 2000 2010 2020 Year Percent of Total Total State Revenues Mineral Revenues State Revenues include all taxes, licenses, and fees. Mineral revenues include both severance taxes and mineral revenues from state lands. 0$ 90 $10 $15 Billions of Dollars $5#15Percent of Total 0% 10% 20% 30% 40% 50% 60% T Louisiana State Budget and Sales Tax Revenues 1970 1980 1990 2000 2010 2020 Year Percent of Total Total State Revenues State Revenues include all taxes, licenses, and fees. Sales tax includes vehicle sales taxes. Sales Tax $10 $15 Billions of Dollars $0 $5#16Percent of Total 0% 10% 20% 30% 40% 50% 60% 960 Percent of Total Total State Revenues State Revenues include all taxes, licenses, and fees. Louisiana State Budget and PIT Revenues 1970 1980 1990 2000 2010 2020 Year Income Tax $10 $15 Billions of Dollars $0 $5#17Sales taxes as a share of total revenues have remained relatively flat at 29 percent over the last decade, but will go up as more emphasis on sales tax as of Special Session 2016 • PIT have steadily increased in total share of revenues from about 5 percent in early 1980s to 28 percent in 2015. Most significant impact is federal tax policy. Over the last decade, mineral revenues have consisted of about 13 percent of state revenues (taxes, licenses, and fees). This is compared to the 1980s when mineral revenues consisted of about 27 percent of state revenues with a peak of over 40 percent in early 1980s.#18USD T $3 $4 $5 $6 $7 $8 $9 T T Louisiana Tax Revenues Based on Pre-Katrina Payroll $1 billion below prediction 1990 1995 2000 2005 2010 2015 Year Tax Revenues Deviation from Prediction Louisiana Payroll Payroll in tens of billions of USD. Revenues in billions of USD. Recession dates shown with vertical lines. -1 0 1 Deviation (Billions USD) 2#19Exemptions, Exclusions, Rebates, and Credits Exemptions and Exclusions: Erode the Tax Base Credits: Reduce Tax Liability WHEN DID LOUISIANA ADOPT EXEMPTIONS, EXCLUSIONS, REBATES, AND TAX CREDITS?#201971 1925 1026 T 1977 1978 1979 1930 1021 1027 1022 1921 1925 1926 1927 192Q 1929 1010 1911 1912 2,3,4,5 9 Timeline for CIFT Tax Exemptions and Credits 1912 1911 1915 1916 1917 1012 1010 1950 1051 1952 1052 105Л 1955 1956 1057 1958 1050 1960 7 10 1961 10CD 1962 1961 1965 1966 1967 1968 1969 ח107 1071 1972 19.20 8 1072 1971- 1975 6. 13 16 32 21.22 11,12 34 43.44 27 50.51 14 25 18 1976 1977 1070 1970 1980 1991 102 1982 101. 1025 1986 1987 1988 1080 1 aan 1001 1002. 1002 10ад 1005 17 28 15 23,24 26 30 199 33 35 37,38,39,40 1007 100Q 29 1 aaa 2000 2001 2002. 2002. 2001 2005 ՉՈՈՐ 36 31 41,42 52 2007 ՉՈՈՋ 2009 2010 2011 วก1ว 2013 45,46,47,48,49#21Corporate Exemptions and Credits, Est. $1.722 billion Exemptions and Credits Subchapter S Corporation Projections, 2016 $545 million-not really exemption; a pass-through Inventory Ad Valorem-modified $458 million-must apply 75% to all in 2015 inventory taxes paid, not just refundable. Nothing to do with CIFT Net Operating Loss-modified in $373 million-poorly drafted law in 2015 Federal Tax Liability Motion Picture Tax Credit Quality Jobs Enterprise Zone All Others 2015 $208 million--constitutional $136 million-not really a corporate credit-just use CIFT to write off- modified in 2015 session $42 million must examine closely $42 million-eliminate-simply not a productive exemption $126 million#221934 1935 1936 1937 3 1,2 4,5 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 Timeline for PIT Exemptions and Credits 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974- 1975 1976 1977 1978 1979 1980 1981 1982 1983- 10 9 21,22 24 1984 1985 1986 1987 1988 1989 1990 1991 1992 15,16 27 9 37 23 11.12 39,40,4147 70,71,72 17.18 28 14 51,52,53,54 74 25,26 7,8 13 32,33,34,35,33,44 20 30 55,56,57 4667,68,69 19 1993- 1994- 1995- 1996 1997- 1998 1999 2000 2001 2002 2003 2004- 2005 2006 2007 2008 2009 2010 2011 2012 29 31 38 48,49,50 73 42 45 58,59,60,61,62,63,64,65,66 2013 75#23PIT Exemptions and Credits-Est. $2.180 billion Exemptions and Credits Federal Tax Liability Excess Itemized Deductions Personal Exemption/Standard Deduction Retirement Benefits Taxes Paid to Other States Earned Income Tax Credit-working and low income Net Capital Gains-higher income Others Projections for 2016 $845 million--constitutional $360 million-eliminated in 2002; added back in 2007, not used consistently in other states $258 million-common in other states on average higher in LA $232 million-state, teachers, federal and social security $89 million-amended in 2015 session based on 2015 presentation $50 million-based on federal EITC and 26 states now use to assist workers at lower income levels $46.0 million-applicable to LA residents selling LA business $300 million#241940 1941 - 1942- 1943 1944- 1945 - 1946- 2,3,4,5,6,7,8,9 1 1947 1948 1949 1950- 1951- 1952 - 1953 - 1954- 1955 1956- 1957- 1958 1959 1960 10 1961 1962 1963 1964 1965 - 1966- 12,13 Timeline for Sales and Use Tax Exemptions 14 26,27,28,29 1967 - 1968 - 1969- -1970 -1971 1972 1973 1974 1975 1976 - 1977- 1978 1979 1980 1981 19820 1983 1984 36,37 54 40,41 30 39 49 57 57 23,24 32,33 45,46 51 48 20 35 38 53 55,56 18 44 31 50 21,22 58,59 47 15,16,17 19 25 14 11 42,43 52 34 21 -1985 1986 1987 1988 1989 1990- 1991 1992- 1993- 1994 1995 1996 1997 1998 1999- 2000 - 71 71 60,61 63,64 62 14 2001 → 2002 2003 - 2004- 2006- 65 55 2005 68 99 78,79,80,81 67 83 69,70 72,73,74,75,76,77 2007 2008 2009 2010- 20110 8-2012 2013#251948◆ 1,2,3 Timeline for Sales and Use Tax : Exclusions 5 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958- 1959- 1960- 1961 1962 1963 1964 1965- 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 4 7 1983 → 1984 6 8 25,26,27 40,41,42,43 60,61 76,77,78 51 67 17,18,19,20,21 10 37 45 53,54,55 71,72,73,74 9 22,23,24 44 59 79,80,81,82 36 12,13,14 47,48,49 38 66 70 वै जैं 75 === 84 1985- 1986- 1987 1988-0 1989 1990 → 1991-❤ 1992 → 1993 → 1994 1995✪ 1996 1997 ❤ 1998→ 11 33,34,35 1999 2000-0 2001- 2002- 2003 2004 2005 2006 39 56,57,58 46 2007❤ 2008 2009 2010- 68,69 83 83 15,16 62,63,64,65 50 28,29 52 30,31,32 2011 2012 2013#26Sales and Use Tax, $3.346 billion Exemption and Credits Food for Home Consumption Electrical Power for Nonresidential Amount $408 million--Constitutional - $419 million changed in 2015- business development, but other states tax Gasoline and special fuels $380 million--Constitutional Prescription Drugs $295 million--Constitutional State/local governments $203 million--Administration Utilities for Residences $205 million--Constitutional Machinery & Equipment All Others $76 million-economic development $1,360 million-very soft number#27INTERSTATE COMPARISONS#28How High Are Sales Taxes In Your State? Combined State & Average Local Sales Tax Rates in 2015 LA will be #1 WA 8.89% #5 MT None ND 6.56% VT 6.14% #34 NH None ME 5.50% #42 OR None #30 ID 6.01% MN 7.20% #36 SD 5.83% #17 WY 5.47% #40 WI 5.43% #44 MI 6.00% NY 8.48% #7 #43 IA #37 PA NV 7.94% CA #13 8.44% UT 6.68% #28 NE 6.80% #26 6.78% 6.34% #27 IL IN CO 8.19% 7.00% #10 #21 OH 7.10% #19 #32 MA 6.25% #33 7.44% #8 #15 KS 8.20% #9 MO 7.81% #14 KY WVVA 6.07% 5.63% #35 #41 RI 7.00% #21 6.00% #37 AZ 8.17% #11 NM 7.35% #16 OK TN 9.45% #1 NC 6.90% #25 CT 6.35% #31 8.77% #6 AR 9.26% SC 7.13% NJ 6.97% #23 #2 TX 8.05% #12 MS 7.07% 8.91% #3 #20 AL GA #18 6.96% #24 DE AK 1.76% #46 LA 8.91% #4 None MD 6.00% #37 FL 76.65% #29 DC 5.75% (#43) HI 4.35% #45 Note: Three states levy mandatory, statewide, local add-on sales taxes: CA (1%), UT (1.25%). VA (1%). We include these in their state sales tax. The sales taxes in HI, NM, and SD have broad bases that include many services. Due to data limitations, this table does not include sales taxes in local resort areas in MT. Salem County, NJ is not subject to the statewide sales tax rate of 7% and collects a total rate of 3.5%. New Jersey's average local rate is represented as a negative. Sources: Sales Tax Clearinghouse, Tax Foundation calculations, State Revenue Department websites. TAX FOUNDATION Lower Rate Combined State & Average Local Sales Tax Rates in 2015 Higher Rate @TaxFoundation#29Interstate Income Tax Comparison State State Rates # of Brackets SD/PE Highest Rate Applicable Federal Deductibility Alabama 2 to 5% 3 $11,500 $6,000 yes Arkansas 0.9% to 6.9% 6 $4,400 and $35,099 No credits Florida None Georgia 1 to 6% 6 $13,400 $10,000 No Kentucky 2 to 6% 6 $2,460, credits $75,000 No Louisiana 2 to 6% 3 $11,000 $100,000 Yes Mississippi 3 to 5% 3 $19,600 $10,000 No#30Interstate Income Tax Comparison State State Rates # of Brackets SD/PE Highest Rate Federal Applicable Deductibility Louisiana 2 to 6% 3 $11,000 $100,000 Yes North 5.75% 1 $0 0 No Carolina South 3.0 to 7.0% 5 Federal $24,800 No Carolina Standard Exemption Tennessee Applies to interest and dividend income only, 6% rate Texas None Virginia 2 to 5.75% 4 $9,720 $17,000 No West Virginia 3 to 6.5% 5 LO $8,000 $60,000 No#31LA WV TN AR AL VA NC KY GA FL SC MS Corporate Tax Rate Comparison: Top Marginal Tax Rate (number of tax brackets) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 3 3 5 6.0% 7.0% 8.0% 9.0%#32Gaming Activity Number of Types of Gaming 0 (Utah and Hawaii) Source: American Gaming Association#33Presentation to Task Force on Structural Change The Evolution of the Louisiana Tax Structure Dr. Jim Richardson Alumni Professor of Economics and Public Administration Louisiana State University And Dr. Greg Upton Assistant Professor Center for Energy Studies Louisiana State University LSU Center for Energy Studies Assisted by Mr. Nathan Babb Class of 2016 Louisiana State University LSU E. J. Ourso College of Business Public Administration Institute