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Louisiana's Jindal details plan to end state income tax

Governor Bobby Jindal (R-LA) speaks during the Republican Leadership Conference in New Orleans, Louisiana June 17, 2011. REUTERS/Sean Gardne
Governor Bobby Jindal (R-LA) speaks during the Republican Leadership Conference in New Orleans, Louisiana June 17, 2011. REUTERS/Sean Gardne

By Nanette Byrnes

(Reuters) - In a year in which sweeping tax reforms are on the table in several states, Louisiana's Bobby Jindal on Thursday became the first U.S. governor to offer a detailed plan to eliminate his state's income tax, a goal embraced by some conservatives.

Seen as a potential candidate for national office, the second-term Republican proposed eliminating Louisiana's personal income tax and its corporate franchise tax, which together generated $2.9 billion in tax receipts last year.

He called for raising the state sales tax to 5.88 percent from 4 percent, broadening the sales tax to apply to many services, and increasing cigarette taxes to $1.41 from 36 cents per pack. Last year, the state sales tax generated $2.6 billion.

Similar plans have been floated by Republicans in Nebraska, Kansas and North Carolina this year. Critics have said that expanding sales taxes hurts working class and poor families who spend more of their income on items subject to the tax.

Despite a strongly Republican legislature in Louisiana, Jindal's plan faces skepticism in some quarters.

The plan "will not even get out of the House of Representatives" because of the taxes it would raise, said C.B. Forgotston, a lawyer, political commentator and former legislative aide in Louisiana, who is often critical of Jindal.

The plan would need Democratic support to become law and Forgotston said that was unlikely to materialize because the bill does not increase overall revenues for the state.

Jindal's plan would extend the sales tax to some services, but it is expected to exempt a wide range of them, including healthcare, legal, construction, oil and gas services, education and possibly others.

The plan was presented to a joint state legislative committee. Jindal first floated the idea of swapping the income tax for a sales tax increase in January. His staff has been hashing out ways to do that for the past two months.

Many local governments impose fairly high sales taxes, and adding more to the state levy could be troublesome in a state that relies on tourist spending for much of its revenue.

The state's economy has been doing relatively well, with unemployment well below national average, which may also make a push for wholesale tax changes a tougher sell.

The plan drew praise from anti-tax groups. Patrick Gleason, an official at Washington, D.C.-based Americans for Tax Reform, said the plan would make the state's tax system more efficient and competitive, particularly for businesses.

In addition to ending some taxes and increasing others, the plan would make changes to Louisiana's tax system.

Jindal would create a three-judge tax court to hear all tax cases. He also proposes to unify state and local sales tax collection and auditing under one sales tax commission.

That would be needed for the state to begin collecting sales tax on online purchases if national legislation permitting that were to be approved in Washington, according to the proposal.

The Louisiana legislature will take up the plan in its session starting April 8.

(Editing by Kevin Drawbaugh; Editing by Chizu Nomiyama)

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