BATON ROUGE, La. (Louisiana Illuminator) — Although Gov. Jeff Landry’s major tax overhaul would do away with many of the state’s tax breaks in exchange for lower income tax rates, Louisiana’s most lucrative corporate subsidy — its Industrial Tax Exemption Program — would remain in place, according to a member of the governor’s cabinet.
“We’re not touching ITEP,” Louisiana Economic Development Secretary Susan Bourgeois said in an interview Friday after testifying before the state House Ways & Means Committee. Lawmakers have convened in a special session this month to rewrite the state’s tax code, which will ultimately need approval from voters statewide.
Louisiana’s ITEP is one of the most generous corporate handouts in the nation, giving large industrial companies, many in the petrochemical sector, an 80% exemption on property taxes for up to 10 years.
Since 1998, Louisiana has awarded more than $20 billion in local tax breaks to industry through ITEP, according to an Ohio River Valley Institute analysis.
Bourgeois said there is no need for the program to be part of discussions in the legislative session because it doesn’t impact state revenue.
The state manages ITEP through its economic development department and the Board of Commerce and Industry. The program’s critics had long complained the board, an unelected group of political appointees, had nearly complete control to deprive parishes of their own property tax revenues.
That arrangement changed in 2016 when then-Gov. John Bel Edwards issued an executive order that required local approval of any industrial tax exemption. He also required companies to create jobs in order to get an exemption.
When Landry took office, he issued a new executive order, removing the job creation requirement and wresting control of industrial tax exemptions away from local governments. Instead of each local taxing body having to approve an ITEP request, Landry created consolidated parish industrial boards that take a single vote.
While ITEP will remain in place, Landry’s tax overhaul would sunset the rest of Louisiana’s incentive programs such as those for film production, angel investments, digital media services, historical renovation and others. The Quality Jobs tax credit, which also caters to industrial manufacturers by subsidizing their payrolls, will also go away.
Any companies with current incentive contracts under Louisiana Economic Development programs would be honored.
The proposed changes are a part of House Bill 2, sponsored by Rep. Julie Emerson, R-Carencro, which cleared the House Ways & Means Committee on Sunday. It received opposition from New Orleans Reps. Matt Willard and Mandie Landry, both Democrats.
Film industry executives and real estate developers who renovate historic buildings testified in opposition to the bill, voicing concerns that it would hurt their businesses.
Although many industries would lose their incentives, Landry’s tax package would offset the losses by reducing income tax rates for both individuals and corporations. Emerson’s bill includes a provision that would eliminate the current graduated corporate income tax brackets and establish a flat rate of 5.5% for the first year and then 3.5% thereafter.
The gradual decrease would limit the impact of revenue losses until the various tax incentives fully sunset as individual LED contracts expire over the next few years.
Separate legislation that lawmakers advanced last week would establish a flat individual income tax rate of 3% and establish a much higher $12,500 standard deduction per filer, up from $4,500.
Louisiana Department of Revenue Secretary Richard Nelson told lawmakers Sunday that the future effects of the tax overhaul would best be measured through population growth and median household income.
“I think three years from now you’ll see a significant change in those numbers,” Nelson said.
By Wesley Muller for Louisiana Illuminator