Building a Better Tax Cut in Louisiana

Last week, Louisiana's House Ways and Means Committee approved a measure (SB 87) to repeal one more element of the state's 2002 "Stelly Plan," marking further retreat from that landmark legislation's principles of tax fairness, adequacy, and stability. As reported by the Ways and Means Committee, SB 87 would raise the income levels at which married couples begin to pay the state's top 6 percent income tax rate from $50,000 to $100,000 (and from $25,000 to $50,000 for single people). As a result, the measure would reduce annual income tax revenue by close to $300 million per year, but would only cut taxes for the one-third of Louisianans who currently pay at the 6 percent rate. In fact, more than a quarter of the bill's benefits would accrue to the wealthiest 5 percent of Louisianans.

While the Committee's version of the measure is certainly an improvement over the version adopted by the Senate -- which would have repealed the state income tax altogether -- less expensive, more fair, and farther reaching alternatives are available.

A new analysis, jointly released by Louisiana 's Agenda for Children and the Institute on Taxation and Economic Policy, offers one such alternative. It shows that, by expanding the state's bottom income tax bracket -- instead of shrinking its top bracket -- and by strengthening its EITC, Louisiana policymakers could cut taxes for twice as many people... but at half the cost of SB 87. Such an alternative would lower the taxes paid by slightly more than three-quarters of Louisianans, while reducing annual income tax collections by roughly $130 million. The alternative would not only provide a larger average tax cut to middle-income Louisianans, but would also ensure that the bulk of the tax reduction it would produce would go to the bottom 60 percent of the income distribution. Other alternatives -- such as reducing Louisiana 's lowest income tax rate or lowering the state's sales tax rate -- would also be preferable to SB 87 from a tax fairness perspective

Given the highly regressive nature of Louisiana's current tax system -- as of 2006, the poorest 20 percent of Louisianans faced an effective tax rate that was more than twice that of the richest 1 percent -- the need for such an equity-enhancing alternative is clear. It's now up to Louisiana's elected officials to respond.