Tulane economist and GNO Inc’s president weigh in on new business tax proposal

NEW ORLEANS, LA (WVUE) – The head of GNO INC., which works to increase economic development, thinks Gov. John Bel Edwards’ proposal to impose a new tax on the gross receipts of big businesses could hurt recruitment. But a Tulane University economist who served on a special task force that looked at ways to overhaul the state’s tax code believes that given the state’s fiscal posture, businesses could end up paying more even if the proposed commercial activity tax is rejected by the Legislature.

“This was not something that was in our task force report,” said Tulane Professor of Economics Steven Sheffrin, who served on the Task Force on Structural Changes in Budget and Tax Policy.

Professor Sheffrin said the proposed tax, while not perfect, would lead to more parity in terms of businesses paying taxes in Louisiana.

“It provides what we call an alternative minimum tax for corporations. As the governor pointed out, there’s a lot of corporations that don’t pay any tax on their corporation tax and the reason is we’ve given so many credits and this would basically say well, you pay the higher of the gross receipts or the corporation, so basically every corporation would pay some tax,” Sheffrin said.

“It’s conceptually simple, it’s the idea of just tax everyone on everything that they make, but when you get into what that means practically there are a lot of problems. It penalizes low margin firms like grocery stores,” said Michael Hecht, President and CEO of GNO, Inc., which works to increase economic development in the New Orleans area.

He thinks among other things the proposed commercial activity tax would tax gross receipts would also hurt start-ups.

“It pyramids the tax through the production line, it amounts to a double taxation on LLC or pass through businesses and it’s going to suppress start-up activity because if you’re a start-up getting taxed on revenues and not profits when you have no profits to pay taxes that’s a real problem,” said Hecht.

New Orleans is seeing a lot of growth in the area of start-ups, particularly tech companies.

“We lead the nation by 64 percent in the number of start-ups per capita, we are actually number one in terms of tech growth over the past five years in America, we actually number five for women participating in tech-growth. We don’t want to hurt that activity unwittlingly for our tax policy,” Hecht said.

“We haven’t taken an official position but the feedback I’ve been getting from members isn’t positive,” said Todd Murphy, President of the Jefferson Chamber of Commerce.

And Hecht said tax uncertainty is never a good thing when you’re trying to attract more economic development to the state.

“Overall, Louisiana and specifically Greater New Orleans has a great package to offer businesses, it’s a low-cost, high-culture, very welcoming environment but the number one enemy of business is uncertainty. Anytime we’re having this dialogue about what our tax code is going to be and our structure is in flux, that creates uncertainty and that makes it more difficult to recruit businesses,” said Hecht.

Professor Sheffrin thinks getting the Republican-controlled Legislature to pass the new tax on businesses will be difficult, to say the least.

However, he said with the governor wanting to remove the 5th penny of the state’s sales tax, not having the CAT tax could leave businesses vulnerable to a different kind of financial hit.

“That’s going to be a tough one, and if he doesn’t he’s going to have to find some other source of revenue, so business is going to pay one way or the other, either they’re going to pay when he cuts back on their credits or some way maybe harder than he recommended or some other tax, but if he wants to lower the sales tax rate down to four percent and business wants that, as well they’re going to have to come up with some other revenue source, if not, then the status quo would be the sales tax rate would just continue at five percent,” he said.

“We do need to clean up our tax code, there are too many exemptions and deductions and just too much complexity, but I would say that the most important message is that the real job of business is to create jobs and that’s what we should be encouraging.”

The governor also wants to phase out the corporate franchise tax over 10 years.

“We do need to clean up our tax code, there are too many exemptions and deductions and just too much complexity, but I would say that the most important message is that the real job of business is to create jobs and that’s what we should be encouraging,” said Hecht.

Sheffrin said the governor embraced about 70-percent of the task force’s recommendations.

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