More than a month after Louisiana Governor Bobby Jindal “parked” his widely-panned proposal to repeal the state’s income tax, state policymakers now are returning to what should be a more straightforward tax reform issue. A new report (PDF) from the Louisiana Legislative Auditor critically evaluates the workings of the state’s film tax credit, which gives Louisiana-based film productions a tax credit to offset part of their expenses when they hire Louisiana workers or spend money on production expenses locally.

From a cost perspective alone, it makes sense to take a hard look at this provision: the state has spent over $1 billion on these Hollywood handouts in the past decade.

But the Auditor’s report is also a good reminder of just how little the state is getting in return for this massive outlay. The report estimates that after doling out almost $200 million in film tax breaks in 2010, the state enjoyed just $27 million in increased tax revenue from the film-related economic activity supposedly encouraged by this tax break.

This means a net loss to the state of about $170 million in just one year.

It’s hardly news that film tax credits offer little bang for the buck: last year the Louisiana Budget Project reported (PDF) that each new job created by the film tax credit is costing the state $60,000, and a recent report (PDF) from the Massachusetts Department of Revenue found that a huge chunk of that state’s film tax credits were going to wealthy taxpayers living in other states. Even when these credits create in-state jobs (and they do generate some economic activity), the transitory nature of film productions means those jobs probably will be gone when the production leaves town. And it’s virtually impossible for lawmakers to know whether they’re really attracting film productions to the state—or just rewarding moviemakers for doing what they would have done anyway (as “incentives” often do). Either way, Louisiana taxpayers are still doling out more than they are getting back.

But it’s not all bad, according to the Auditor’s report: the Louisiana credit does appear to be going largely to film productions that are technically eligible for it. So, as far as the Auditor can tell us, the film tax credit is simply ineffective and not an outright scam. Or at least, it wasn’t until this guy pleaded guilty to fraudulently claiming the credit, which is similar to what happened repeatedly in Iowa after that state’s disastrous experiment with Hollywood tax breaks.

After surviving the three-month train wreck that was the rollout of Governor Jindal’s tax plan, Louisiana lawmakers should find the film tax credit an easy problem to solve since they know how much it costs and just how little they’re getting in return. Right now they’re just tinkering around the edges, but pulling the plug on handouts to Hollywood should be high on policymakers’ to-do list.

Tuesday, the Ohio House of Representatives approved their budget bill which included an across the board 7 percent reduction in income tax rates. Though the House tax plan is less costly than the Governor’s original proposal, Policy Matters Ohio, using Institute on Taxation and Economic Policy (ITEP) data, makes the point that this reduction will still benefit the wealthiest Ohioans. “For the top 1 percent, the tax plan would cut $2,717 in taxes on average. For the middle 20 percent, it would amount to a $51 cut on average. For the bottom 20 percent, it would result in $3 on average.”

This week the Minnesota Senate unveiled their tax plan which, (unlike Governor Dayton’s plan and the House plan wouldn’t create a new top income tax bracket,) would raise the current top rate from 7.85 to 9.4 percent. About 6 percent of taxpayers would see their taxes go up under the Senate plan. Both houses of the legislature and the Governor are committed to tax increases and doing the hard work necessary to raise taxes in a progressive way. Senator Majority Leader Tom Bakk recently said, "Some people are probably going to lose elections because we are going to raise some taxes, but sometimes leading is not a popularity contest."

We’d be remiss if we didn’t draw your attention to this study (PDF) by Ernst and Young for the Council on State Taxation which cautions state lawmakers about expanding their sales tax bases to include services purchased by businesses. Louisiana Governor Bobby Jindal’s failed attempt at income tax elimination included broadening the sales tax base to include a variety of services, including business-to-business services. Ironically, Ernst and Young was hired by the Governor to consult about his plan. Toward the end of the tax debate there, the AP pointed out the disparity between the Governor's consultants’ stance on taxing business-to-business services and what the Governor himself was proposing.

Rhode Island analysts are urging lawmakers to take a closer look at the $1.7 billion the state doles out in special tax breaks each year.  A new report from the Economic Progress Institute recommends rigorous evaluations of tax breaks to find out if they’re working. It then recommends attaching expiration dates to those breaks so that lawmakers are voting whether to renew them based on solid evidence about their effectiveness. These goals are also reflected in a bill (PDF) under consideration in the Rhode Island House -- Representative Tanzi’s “Tax Expenditure Evaluation Act.”

We’ve criticized Virginia’s new transportation package for letting drivers off the hook when it comes to paying for the roads they use, and now the Commonwealth Institute has crunched some new numbers that make this very point: “Currently, nearly 70 percent of the state’s transportation revenue comes from driving-related sources ... But under the new funding package, that share drops to around 60 percent ... In the process the gas tax drops from the leading revenue source for transportation to third place; and sales tax moves into first.”

Last week we brought you news that Louisiana Governor Bobby Jindal was abandoning his plan to eliminate the state personal and corporate income taxes and replace the revenue with an expanded sales tax. Instead, the Governor asked the legislature to “Send me a plan to get rid of our state income tax.” But now the legislature is denying the Governor’s request.

House Ways and Means Committee Chair Representative Robideaux has asked his colleagues to “defer” the bills they already had in the works to repeal the state income tax, and he’s said that he won’t allow hearings on any income tax repeal bill, closing the door on any attempt to eliminate the state’s income tax. Robideaux said, “I think it’s probably dead for the session, right now, there’s probably income tax fatigue.”  Importantly, he also asks, “Is there a constituent base out there demanding repeal of the income tax?” The answer is that two thirds of Louisianans actually opposed the Governor’s plan for this tax swap, which happens to be about the same percentage of Louisianans who stand to lose the most if any such tax plan gets implemented.

Jindal’s failure is a victory for tax justice advocates and a may serve as a lesson for lawmakers in other states entertaining similarly radical tax ideas.

The St. Louis Post Dispatch, for instance, editorialized, “Louisiana's lawmakers realize what Missouri's don't: Income tax cuts are suicidal.” Missouri lawmakers are debating their own draconian tax plan that would roll back income taxes. The Post Dispatch continues, “What Louisiana has recognized is that the supposed benefits of cutting state income taxes are vastly overstated. The impact of service cuts is vastly understated. The effect is that rich people and corporations get richer. Everyone else gets poorer.”  

In another state, Georgia, income tax elimination has been debated for years, but this columnist with the Atlanta Journal Constitution is hopeful that the tax justice victory in Louisiana will lead to Georgia lawmakers reconsidering their own proposal, which eliminates the personal and corporate income tax for no good reason.

Tax plans similar to Jindal’s have hit road blocks in Nebraska and Ohio this year. Among the many reasons these plans fail, it seems, is that when people realize that they amount to unwarranted tax cuts for the rich that raise taxes for everyone else and probably bust the budget, too, common sense prevails and these ideas are defeated. 

We know that Louisianans dodged a bullet when the Governor’s plan fell apart.  And while it’s good news that a big reason was widespread concern over its fundamental unfairness, the fact is Bobby Jindal is not the only supply-sider committed to eliminating the income tax. So we savor the victory, yes, but also prepare for the next battle as similar plans are winding their ways through other state capitals.

In a speech to the Louisiana Legislature yesterday, Governor Bobby Jindal announced that he would “park” his tax plan. There is no doubt this is a huge blow to supply-side advocates and Arthur Laffer enthusiasts who tout false claims that tax cuts will ultimately pay for themselves and increase economic development.

The Governor’s controversial plan would have repealed the state’s personal and corporate income and franchise taxes and then paid for these tax cuts by increasing the sales tax. The sales tax changes included increasing the state tax rate from 4 percent to 6.25 percent, and expanding the base of the tax to include a wide variety of previously untaxed services and goods. ITEP found that the Governor’s plan would have raised taxes on the bottom 60 percent of Louisianans, as tax swaps tend to do.

The Governor’s plan met enormous resistance “in recent weeks as business groups and advocates for the poor have assailed its effects and think tanks have questioned whether the math in the proposal adds up.” Now the Governor is backing away from his proposal and urging the legislature to send him its own bill – one that would also eliminate the personal income tax – leaving “tax reform” up to the state legislature.

The key fact to bear in mind for Louisiana is that aside from raising the sales tax, there is really no way for the state to replace nearly $3 billion in revenue that will be lost if the income tax is eliminated. Lawmakers would do better to stay away from supply-side theories and instead close corporate tax loopholes, reverse the regressivity of the state’s tax structure and invest in public infrastructure because that is what real reform looks like.

Since January, we’ve brought you updates as best we could about Louisiana Governor Bobby Jindal’s controversial tax swap plan, but details remained elusive. Finally, late last week, the Governor released enough information – including a newly calculated, bigger sales tax rate increase – and the Institute on Taxation and Economic Policy (ITEP) was able to complete a full analysis of the Governor’s tax plan. The centerpiece of the Jindal plan is the outright repeal of the state’s personal and corporate income and franchise taxes. These tax cuts would be paid for primarily by increasing the state sales tax rate from 4 percent to 6.25 percent, and expanding the base of the tax to include a wide variety of previously untaxed services and goods.

ITEP’s analysis shows that, if fully implemented in 2013, the plan would increase taxes on the poorest sixty percent of Louisianans overall, while providing large tax cuts for the best-off Louisiana taxpayers. In fact, ITEP found that the poorest 20 percent of Louisianans would see a net tax increase averaging $283, or 2.4 percent of their income, while the very best-off Louisianans would see a tax cut averaging almost $30,000, or 2.5 percent of this group’s total income.

Louisiana Department of Revenue (DOR) Executive Counsel Tim Barfield continues to insist that all Louisianians will be better off under the Governor’s plan. But, as ITEP’s report points out, DOR’s estimates are flawed: they only include the impact of taxes paid directly by individuals and they ignore the impact of taxes paid initially by businesses. This approach presents an incomplete picture of how the Jindal plan would affect Louisianans, though, because a substantial share of the current sales tax, and the large majority of the expanded sales tax base the Governor proposes, would be paid initially by businesses. Economists generally agree that these business sales taxes are ultimately passed on to consumers in the form of higher prices.

Louisianans themselves aren’t buying the Governor’s numbers either. His tax swap plan has the support of only 27 percent of Louisianans – and that was before he upped the sales tax increase even further.

Read ITEP’s full analysis of Govenor Jindal’s tax plan here.

Here’s some happy news: a recent poll finds that just 27 percent of Louisianans support Governor Bobby Jindal’s tax swap, and that’s before the Institute on Taxation and Economic Policy (ITEP) released its latest analysis showing that the poorest 60 percent of taxpayers in Louisiana would see a tax hike as a result of the Governor’s plan.

A robotics company based in Nevada recently decided to abandon the state’s allegedly “business friendly” environment in favor of Silicon Valley in California, where there are better trained employees and plenty of deep pocketed investors. Nevada does not levy a personal or corporate income tax, but as Romotive founder Keller Rinaudo explains: "It was not a short-term economic decision ... We have to find experienced roboticists, and that really only exists in a few places in the world, and California is one of them."

Maryland’s gas tax will be increased and reformed starting July 1 under a bill just sent to Governor Martin O’Malley by the state’s legislature.  This year’s increase will be something less than 4 cents per gallon, but the tax will now rise each year alongside inflation and gas prices, as recommended by ITEP. ITEP showed that even with the increase, Maryland’s gas tax rate will still remain below its historical average and be less than the state probably needs.

Here’s an interesting story in the Minnesota Star Tribune about how Governor Dayton’s tax plan would impact the wealthiest Minnesotans. While opponents resort to the usual tax-hikes-kill-jobs refrain, Wayne Cox of Minnesotans for Tax Justice notes, “Economists believe keeping teachers and firefighters on the payroll is at least three times more helpful to the economy than keeping income tax rates at the top the same.”

Tax cuts for opposite ends of the income spectrum are getting opposite treatment in Maine and Arkansas. This week, Maine lawmakers rejected a bill that would cut taxes on capital gains (which heavily benefits wealthy taxpayers) and approved an increase in the state’s Earned Income Tax Credit (EITC) (PDF), which amounts to a tax cut to low- and moderate-income families. But last week in Arkansas, a House panel approved a cut in taxes on capital gains while passing up an opportunity to enact a state EITC.

Oklahoma Governor Mary Fallin’s proposal to repeal the state’s top personal income tax bracket is “gaining traction,” according to The Oklahoman.  The plan has already passed the House, and has the support of the state Chamber of Commerce. But the Oklahoma Policy Institute explains that this cut is stacked in favor of high-income residents: “the bottom 60 percent of Oklahomans would receive just 9 percent of the benefit from this tax cut, while the top 5 percent would receive 42 percent of the benefit.”  

Texas and Washington State are continuing to search for ways to make it easier to identify and repeal tax breaks that aren’t worth their cost.  The Texas Austin American-Statesman reports on a bill that “would put the tax code under the microscope, examining tax breaks in a six-year cycle similar to the Sunset process that evaluates whether state agencies are performing as intended.”  And the Washington Budget and Policy Center explains in a blog post how “all three branches of state government have taken, or are poised to take, actions that could greatly enhance transparency over the hundreds of special tax breaks on the books in Washington state.”

This Toledo Blade editorial gets it right about Ohio Governor Kasich’s plan to broaden the sales tax base to include more services: “There is merit, in theory, to expanding the sales tax to include more services. But the experience in states such as Florida — which broadened its tax base, then abandoned the effort as unworkable — suggests it should be done slowly and for the right reasons.” Broadening the sales tax base is good policy, but the Kasich plan is bad for Ohioans because overall the plan (according to an Institute on Taxation and Economic Policy analysis) increases taxes on those who can least afford it while cutting taxes for the wealthy.

ITEP is waiting for full details of Louisiana Governor BobbyJindal’s tax swap plan, but already clergy and ministers in the state are weighing in against the Governor’s plan to eliminate state income taxes and replace the revenue with a broader sales tax base and a higher rate. In this commentary, the Right Rev. Jacob W. Owensby, (bishop of the Episcopal Diocese of Western Louisiana), worries: “It is difficult to see how increased sales taxes will pass the test of fairness that we would all insist upon. Our tax system has lots of room for improvement. But relying on increased sales tax will not give us the fair system we need. Raising sales taxes will increase the burden on those who can least afford it.”

Louisiana Governor Bobby Jindal today announced some details of his long-awaited “tax swap” plan. He proposes to repeal the state’s personal and corporate income taxes in a “revenue-neutral” way—that is, the revenue loss from repealing these taxes would have to be entirely offset by tax hikes in other areas.

We know the Governor’s so-called reform plan would increase the state sales tax rate from 4 to 5.88 percent—which in local-tax-heavy Louisiana means the average combined state and local sales tax rate statewide would shoot up from about 8.75 percent to a whopping 10.6 percent.

Since the sales tax rate hike would only pay for about a third of the revenue lost from repealing the income and corporate taxes, Jindal’s plan also relies heavily on expanding the state sales tax base to make up the remaining difference. Acccording to the Governor, he’d do it by eliminating close to 200 currently-existing sales tax exemptions. Jindal would also raise the cigarette tax by over $1 per pack.

There’s a lot we still don’t know about the plan (which was the case with his earlier plan, too). Jindal has said he will provide tax relief to seniors and low-income families to offset the impact of these potentially huge sales tax hikes. But how that would be implemented—and, critically, how much it would cost—remains unknown.

Still, the specific details we’ve heard so far are enough to raise several important concerns about the plan’s plausibility—and its impact on tax fairness and sustainability if it is enacted.

Eliminating sales tax exemptions is perhaps the most politically difficult tax reform challenge for state lawmakers – as Minnesota Governor Mark Dayton is the most recent to discover. Sure, every state tax commission for decades has identified expanding the sales tax base, mainly to services that account for more consumer dollars every year, as a way of making the sales tax a more sustainable revenue source for the long haul. But the fact is that the potentially devastating impact of this move on low-income families, coupled with the entrenched opposition of lobbyists for the many industries that would be newly taxed under these proposals, have generally meant that these proposals die a quick death in legislatures.

And even if the Louisiana Legislature could achieve what virtually no other state has ever done—wiping the slate clean by broadly erasing sales tax exemptions from the books—it seems inevitable that the plan as a whole would result in a massive tax shift onto middle- and low-income families—and a giant tax cut for the best-off Louisianans. Unless, that is, Louisiana is prepared to enact a low-income tax credit, one so generous it would dwarf anything offered by other states. But it appears that Governor Jindal's plan would only provide a tax rebate only to families earning less than $20,000, which does nothing to offset the sales tax increases facing a large group of middle-income Louisianans.

In recent months, Jindal has also made it clear that his motivation for this tax plan is to be more “competitive” and more like Texas and other “low tax” states. (Never mind that Texas is a high tax state for its poorest residents.)  Jindal has bought into a talking point crafted by Arthur Laffer (and disseminated by groups like ALEC and the Tax Foundation) about job growth resulting from low taxes.  But Laffer’s argument is a house of cards, entirely unsupported by the evidence, as ITEP has shown.  Early news reports of Jindal’s plan are that anti-tax groups love it and it boosts his odds of getting the Republican presidential nomination. But unless a tax plan is well received by ordinary constituents and boosts the state’s odds of economic success, it isn’t worthy of the word “reform.”

Note to Readers: This is the second of a six part series on tax reform in the states.  Over the coming weeks, The Institute on Taxation and Economic Policy (ITEP) will highlight tax reform proposals and look at the policy trends  that are gaining momentum in states across the country. This post focuses on “tax swap” proposals.

The most extreme and potentially devastating tax reform proposals under consideration in a number of states are those that would reduce or eliminate one or more taxes and replace some or all of the lost revenue by expanding or increasing another tax.  We call such proposals “tax swaps.”  Lawmakers in Kansas, Louisiana, Nebraska and North Carolina have already put forth such proposals and it is likely that Arkansas, Missouri, Ohio and Virginia will join the list.

Most commonly, tax swaps shift a state’s reliance away from a progressive personal income tax to a regressive sales tax. The proposals in Kansas, Louisiana, Nebraska and North Carolina, for example, would entirely eliminate the personal and corporate income taxes and replace the lost revenue with a higher sales tax rate and an expanded sales tax base that would include services and other previously exempted items such as food.   

In the end, tax swap proposals hike taxes on the majority of taxpayers, especially low- and moderate-income families and give significant tax cuts to wealthy families and profitable corporations. For instance, according to an ITEP analysis of Louisiana Governor Bobby Jindal’s tax swap plan (eliminating the personal income tax and replacing the lost revenue through increased sales taxes) found that the bottom 80 percent of Louisianans would see their taxes increase. In fact, the poorest 20 percent of Louisianans, those with an average annual income of just $12,000, would see an average tax increase of $395, or 3.4 percent of their income. At the same time, the elimination of the income tax would mean a tax cut for Louisiana’s wealthiest, especially in the top 5 percent.  ITEP concluded that any low income tax credit designed to offset the hit Louisiana’s low income families would take would be so expensive that the whole plan could not come out “revenue neutral.” The income tax is that important a revenue source.

These proposals also threaten a state’s ability to provide essential services, now and over time. They start out with a goal of being revenue neutral, meaning that the state would raise close to the same amount under the new tax structure as it did from the old.  But, even if the intent is to make up lost revenue from cutting or eliminating one tax, these plans are at risk of losing substantial amounts of revenue due in large part to the political difficulty of raising any other taxes to pay for the cuts. Frankly, it’s taxpayers with the weakest voice in state capitals who end up shouldering the brunt of these tax hikes: low and middle income families.

Proponents of tax swap proposals claim that replacing income taxes with a broader and higher sales tax will make their state tax codes fairer, simpler and better positioned for economic growth, but the evidence is simply not on their side. ITEP has done a series of reports debunking these economic growth, supply-side myths. In fact, ITEP found (PDF) that residents of so-called “high tax” states are actually experiencing economic conditions as good and better than those living in states lacking a personal income tax. There is no reason for states to expect that reducing or repealing their income taxes will improve the performance of their economies; there is every reason to expect it will ultimately hobble consumer spending and economic activity.

Here’s a brief review of some of the tax swap proposals under consideration:

Last week Nebraska Governor Dave Heineman revealed two plans to eliminate or greatly reduce the state’s income taxes and replace the lost revenue by ending a wide variety of sales tax exemptions. ITEP will conduct a full analysis of both of his plans, though it’s likely that increasing dependence on regressive sales taxes while reducing or eliminating progressive income taxes will result in a tax structure that is more unfair overall.

If Kansas Governor Sam Brownback has his way he’ll pay for cutting personal income tax rates by eliminating the mortgage interest deduction and raising sales taxes. An ITEP analysis will be released soon showing the impact of these changes – made even more destructive because of the radical tax reductions Governor Brownback signed into law last year.

Details recently emerged about Louisiana Governor Bobby Jindal’s plan to eliminate nearly $3 billion in personal and corporate income taxes and replace the lost revenue with higher sales taxes. ITEP ran an analysis to determine just how that tax change would affect all Louisianans. ITEP found that the bottom 80 percent of Louisianans in the income distribution would see a tax increase. The middle 20 percent, those with an average income of $43,000, would see an average tax increase of $534, or 1.2 percent of their income. The largest beneficiaries of the tax proposal would be the top one percent, with an average income of well over $1 million, who'd see an average tax cut of $25,423. You can read the two-page analysis here.

North Carolina lawmakers are considering a proposal that would eliminate the state’s personal and corporate income taxes and replace the lost revenues with a broader and higher sales tax, a new business license fee, and a real estate transfer tax. The North Carolina Budget and Tax Center just released this report (using ITEP data) showing that the bottom 60 percent of taxpayers would experience a tax hike under the proposal. In fact, “[a] family earning $24,000 a year would see its taxes rise by $500, while one earning $1 million would get a $41,000 break.” The News and Observer gets it right when they opine that the “proposed changes in North Carolina and elsewhere are based in part on recommendations from the Laffer Center for Supply Side Economics.  Supply-side economics (or “voodoo economics,” as former President George H.W. Bush once called it) didn’t work for the United States…. We wonder why such misguided notions endure and fear where they might take North Carolina.”

Late last week details emerged of Louisiana Governor Bobby Jindal’s plan to eliminate nearly $3 billion in personal and corporate income taxes and replace the lost revenue with higher sales taxes. Knowing that sales taxes take the biggest bite out of low-income family budgets, the Institute on Taxation and Economic Policy (ITEP) decided to issue an analysis to determine just how that tax change would affect all Louisianans. 

Though the governor indicated interest in some unspecified mechanism to mitigate the impact for the state’s poorest residents, he didn’t provide any details so ITEP couldn’t analyze it. But in any case, ITEP concluded that the “overall shift in tax liability is so dramatic that the plan is virtually guaranteed to have a regressive impact regardless of whether or not a low-income relief program is added to the package.”

In particular, ITEP found that the bottom 80 percent of Louisianans in the income distribution would see a tax increase. Specifically, the poorest 20 percent of taxpayers, those with an average income of $12,000, would see an average tax increase of $395, or 3.4 percent of their income. The middle 20 percent, those with an average income of $43,000, would see an average tax increase of $534, or 1.2 percent of their income. The largest beneficiaries of the tax proposal would be the top one percent, with an average income of well over $1 million, who'd see an average tax cut of $25,423.

You can read the 2-page analysis here.

The Governor said, “[e]liminating personal income taxes will put more money back into the pockets of Louisiana families and will change a complex tax code into a more simple system that will make Louisiana more attractive to companies who want to invest here and create jobs.” But this is doubly not the case. Far from putting more money back into the pockets of Louisiana families, his proposal would raise taxes on the poor and middle class. It would also threaten Louisiana’s ability to provide critical services (from schools to roads to a public health) in the future that are essential to the health of the state’s economy.

Fortunately, ITEP’s report is already helping inform the debate. Jindal tax reform proposal equates to increase for bottom 80%, Jindal tax plan draws mixed reviews and Cutting income tax is the easy part; filling the gap is trickier are a few of the news stories the report has generated.  If Governor Jindal offers more specifics or modifications, you will find updated analyses here and at www.ITEP.org.

To see ITEP’s recent preview of state tax reform prospects nationwide, click here.

Bad news out of Louisiana, where the chairman of a commission reviewing the state’s tax breaks says they will likely fail to make recommendations for which breaks should be reformed or eliminated.  Turns out no one has been collecting useful data on their cost and performance, and no methodology for comparing tax breaks against each other is available. Both of these shortcomings could have been prevented had the state followed ITEP’s five recommendations for tax expenditure reform .

Policy Matters Ohio has a new report reinforcing the idea that gambling revenue is not a panacea (PDF) for ailing state and local budgets.  The report’s major finding?  “New casino tax revenue will provide less than a quarter of the nearly $1 billion in annual losses local governments will see because of cuts in state aid... Ohio needs to boost its investment in schools, local governments and human services with additional revenue from those who can afford to pay. Revenue from gambling does not suffice.”

Here’s a great blog post from our friends at the Oklahoma Policy Institute (OKPolicy) about the diastrous tax plan that Kansas Governor Sam Brownback signed last May, and why Oklahoma policymakers shouldn’t pursue the same sorts of costly and regressive tax cuts enacted by their neighbors in the Sunflower State.  OKPolicy concludes, “Oklahoma does not need to be the next laboratory for Kansas’ radical tax experiment.”

Picking up on Mitt Romney’s infamous assertion about the 47 percent, this post from the Wisconsin Budget Project answers the question “Who’s in the “47%” in Wisconsin?” They use Census data and figures from the Center on Budget and Policy Priorities (CBPP) to figure out who really are the “moochers.” The Budget Project argues that there are “numerous Wisconsin workers who would probably love to earn enough to owe income taxes,” so the smart move would be implementing policy options to improve their compensation and help them join the tax -paying ranks.

Here’s a follow up to our previous post describing the effort to get a much needed severance tax increase on the ballot in Arkansas.  The former natural gas executive, Sheffield Nelson, who was behind the effort has said that he won’t have enough signatures to qualify this proposal for the November ballot.

Last month, a Louisiana Revenue Study Commission began looking into the state’s tax exemptions to see if these government handouts are effective. Now that Governor Bobby Jindal has been passed over as the Republican Vice Presidential nominee, it appears he’s going full speed ahead with revenue neutral tax “reform” efforts.  As part of the efforts to reform the tax structure and examine tax expenditures the Governor, other policymakers and taxpayers should review these new materials from the Louisiana Budget Project.

This week, Illinois Governor Pat Quinn signed into law legislation that imposes a new tax on strip clubs. Revenue generated from this new tax will fund programs for victims of sexual assault. By choosing to enact an entirely new tax that seems destined to raise little revenue, rather than enacting needed reforms in the taxes the state already levies, Illinois lawmakers have missed a chance to make the tax system fairer. The worthy goal of funding anti-abuse efforts would be better served by eliminating income, sales and corporate tax loopholes.

Iowa’s gas tax is at an all-time low and shrinking- and transportation infrastructure is suffering because of it.  Earlier in the year, we thought Governor Terry Branstad would champion an increase in the tax to address the state’s transportation funding needs.  Now we have learned the governor will only support a “modest” change in the gas tax if lawmakers first reduce property, personal income and corporate income taxes.  Which begs the question- how will Iowa pay for much needed road and bridge repairs if the state is left with even less revenue than it had before this so-called “reform” plan?

Photo of Bobby Jindal via Gage Skidmore Creative Commons Attribution License 2.0

• The Boston Globe covers an important new report finding that: “Over the past 16 years [Massachusetts] has more than doubled the amount of tax breaks it provides businesses to spur economic development but has only a vague idea whether the incentives are worthwhile.”  The full report, from the Massachusetts Budget and Policy Center, has more data on the large and growing cost of these breaks, and urges the state to thoroughly evaluate whether these so-called “incentives” are the best use of Massachusetts taxpayers’ dollars.

• The value of Louisiana’s film tax credit is being seriously questioned.  According to the Louisiana Budget Project (LBP), the cost of the credit has ballooned in recent years, while producing little in the way of long-term benefits.  LBP finds that the state is paying a steep price of $60,000 for each job created by the credit, despite many of those jobs being only temporary.

• Low-income Garden Staters are feeling the pinch from Governor Christie cutting back the state’s Earned Income Tax Credit (PDF) – an effective, targeted tax reduction for low- and moderate-income workers.  According to a New Jersey Policy Perspectives analysis, at a time when the number of New Jersey families living below the poverty line has increased by 25 percent, the reduced EITC has meant that nearly 500,000 families have lost on average $200 a year.  State lawmakers have attempted to restore the credit to 25 percent of the federal version (Christie cut it to 20 percent in 2010) and even the governor included a restoration in his original budget proposal this year.  However, politics got in the way and Christie vetoed legislation to restore the EITC until lawmakers agree to his expensive tax cut plan that benefits the wealthiest New Jersey residents.

Photo of Chris Christie via David Shankbone Creative Commons Attribution License 2.0

• Louisiana is preparing to take a much closer look at the $4 billion it spends on special tax breaks each year, as the brand new Revenue Study Commission holds its first meeting this week.  The chairman of the state’s House tax-writing committee admits that “we don’t know” whether Louisiana’s tax breaks are working, even though “some of these things have been on the books for more than 80 years.”  Gov. Jindal may be the biggest obstacle to progress on this issue, as he’s said that eliminating an ineffective tax break is technically a “tax hike” that he would veto.
• An op-ed in the Orlando Sentinel highlights the problems with Florida’s tax system, and how to fix them: “Our tax structure is inadequate to our needs, poorly matched with today's economy and unfair to average Floridians and small business owners.”  Writing for the Florida Center for Fiscal and Economic Policy, the author urges closing corporate tax loopholes and other special interest tax breaks to begin addressing these problems.
• As we’ve pointed out before, most of Indiana gubernatorial candidate John Gregg’s tax ideas so far have been short-sighted and unaffordable.  But Gregg’s newest idea to create a child care tax credit is a good one, as has been recommended (PDF) by the Institute on Taxation and Economic Policy (ITEP).
• The Anniston Star Editorial Board has a numbers-heavy piece explaining the problems with the state’s tax system.  In a nutshell: “Alabama may be a low-tax state for people and businesses at the upper end of the income scale, but at the lower end, Alabama’s tax system adds to people’s misery.”  ITEP has found that Alabama has one of the ten most regressive state and local tax systems in the country.

The history of states subsidizing professional sports stadiums with taxpayer dollars is long and, increasingly, controversial. Maryland provided nearly one hundred percent of the financing for the Orioles’ and Ravens’ shiny new facilities in the 1990s. In 2006, the District of Columbia subsidized the Washington Nationals’ new stadium at a cost to taxpayers of about $700 million.  And even though most stadiums are, in the long run, economic washes at best, losers at worst, there are still politicians willing to throw money at them.

Minnesota legislators, for example, are currently grappling with how to fund a new stadium for the Vikings in response to threats that the franchise may leave the state.  But before the legislature gives away nearly a billion dollars, State Senator John Marty raises some excellent points about the math, and morals, behind the proposed taxpayer subsidies for the stadium:

“The legislation would provide public money in an amount equivalent to a $77.30 per ticket subsidy for each of the 65,000 seats at every Vikings home game. That's $77 in taxpayer funds for each ticket, at every game, including preseason ones, for the next 30 years.… Public funds can create construction jobs, but those projects should serve a public purpose, constructing public facilities, not subsidizing private business investors. The need to employ construction workers is not an excuse to subsidize wealthy business owners, especially when there is such great need for public infrastructure work.” 

In  Louisiana, the House of Representatives has gone ahead and approved a ten-year, $36 million tax subsidy  to keep the state’s NBA team, the Hornets, in New Orleans until 2024. Some are asking if the state can really afford it given a $211 million budget gap.  Representative Sam Jones noted that while the state has cut health and education spending, it still found a way to come up with millions of dollars to help out the ”wealthiest man in the state.” That would be Tom Benson, owner of not only the Hornets but the legendary New Orleans Saints football team, whose net worth is $1.1 billion dollars.

In California, however, a different scenario is unfolding. Sacramento Mayor Kevin Johnson just abandoned negotiations with owners of the city’s NBA team, the Kings.  The Kings organization was unwilling to put up any collateral, share any pre-development costs, or commit to a more than a 15 year contract; this would have left the city shouldering all the costs – and all the risks – for developing the $391 million downtown facility.  Mayor Johnson said he’d offered everything he could to the team and it still wasn’t enough, so he pulled the plug. 

Given the high cost and low return (including in terms of jobs) that sports facilities generate, more leaders should follow Minnesota’s Marty and Sacramento’s Johnson and stand up for the taxpayers who pay their salaries.

(Thanks to Field of Schemes and Good Jobs First for keeping tabs on these subsidies!)

Recently, the Louisiana Legislative Auditor issued a report that found the cost of the corporate income and franchise tax credits for the state was a staggering $3 billion between 2005 and 2010. The total tax liability during that same time was just $5.4 billion, which means the state lost over half of its potential revenues because of these credits, but no one can show how the state benefitted.  In 2009, in fact, those credits were worth $685 million, which is about 78 percent of all taxes owed by businesses that year.  When 14 separate agencies are giving away three quarters of the state’s business tax revenue in a year and no one can say why, it's a problem.

Not surprisingly, the Auditor recommends better monitoring of these costly incentives to determine if they are effective. Here’s a primer on why and how to measure business tax breaks’ impact. Because, when states do bother to track the economic effects of so-called incentives, they find the business lobby’s promise may not be fulfilled.

The Louisiana report goes on: “If the legislature is interested in the return on investment for the state’s tax credits and other exemptions, the legislature may wish to consider adding this [monitoring] requirement to state law and requiring the appropriate state entities to formally track and report this information.”

We suggest that the legislature do more than just consider increased monitoring and tracking and instead put those mechanisms in place immediately. Taxpayers have a right to know if their tax dollars are being spent effectively. As the Legislative Auditor Daryl Purpera said of the current system, "It is not good business practice. You'd think we'd be monitoring those funds as best we can.”

You’d think. In fact, Louisiana is one of the states in our Corporate Tax Dodging in the Fifty States report that has failed to enact a single one of six basic business tax reforms and is failing on key transparency measures that would make it easier for ordinary taxpayers to know the ways in which they are subsidizing corporations.

Over Labor Day weekend Louisiana shoppers purchasing items like firearms, ammunition, hunting supplies, holsters, certain knives and archery items didn’t pay any sales tax.  Shoppers participating in the “Second Amendment Weekend Sales Tax Holiday” should be aware that holidays like this one don’t make their state’s tax structure any fairer and they cost Louisiana money.

Governor Jindal is a big proponent of the holiday, saying, “This is a great opportunity for all hunters and campers to save money on the equipment they need to enjoy Sportsman’s Paradise. The weekend-long event will also bring more customers to our local hunting and sporting stores which will further benefit our businesses and Louisiana’s economy.”

Second Amendment politics aside, sales tax holidays are ridiculous tax policy. Holidays like this one and those offered during back-to-school time are not at all targeted, and targeting is the key to smart policy.  They do nothing to meaningfully help low and middle-income families struggling to make ends meet because they can’t just shop when the state says so.  Only wealthier consumers can postpone or move up their shopping to take advantage of these holidays. What’s more, the more well-off will likely make their purchase regardless of a tax holiday; saving four percent on the price probably does not change their consumer behavior.

Sales tax holidays falsely lull legislators into thinking they are helping families in a real way, and make too many families think the state is doing them a favor.  Sportsman’s Paradise or not, Louisiana policymakers should implement smart tax policies that offer more than just window dressing.  The Pelican State can start by ending the deduction it gives for every federal income tax dollar its citizens pay: the richer you are the more you benefit and it’s costing the state about $643 million this fiscal year.  With those revenues, lawmakers could target some tax credits in the direction of low- and middle- income Louisianans who pay a larger portion of their incomes (10% on average) than their rich counterparts in state taxes under the current structure.

Sales tax laws would be essentially meaningless if retailers were not required to collect the tax every time a purchase is made.  The opportunities for customers to evade the sales tax (either on accident, or on purpose) would be overwhelming.  Every state with a sales tax knows this — and as a result, the vast majority of retailers are legally required to collect and remit sales taxes.

Amazon.com and many other online retailers, however, are the major exception to this broad rule.  A 1992 Supreme Court case carved out a special exemption for any “remote sellers” that don’t have a “physical presence” in a state — like a store or warehouse.  The ruling has allowed the Internet to become an open highway for tax evasion. While customers shopping online owe the same sales tax they would if they shopped in a store, very few actually take the time and effort necessary to pay that tax.

This week, four states (California, Louisiana, Texas, and Vermont) made headlines for their attempts to limit the amount of sales tax evasion occurring through “remote sellers,” while a fifth state (Illinois) will soon have to defend its efforts to do the same in court.  By contrast, South Carolina lawmakers were recently bullied into granting Amazon an exemption from having to collect sales taxes for five years, despite the fact that it will soon have a “physical presence” in the state.

In Vermont, Governor Shumlin recently signed a so-called “Amazon law” that will eventually require all remote sellers partnered with affiliate companies physically based in the state to collect and remit sales taxes (see this ITEP report for more on “Amazon laws”).  Unfortunately, the bill was written so that it won’t take effect until 15 other states have enacted similar laws. 

Six states — Arkansas, Connecticut, Illinois, New York, North Carolina, and Rhode Island — have enacted such laws so far, and many more have given the issue serious consideration.  In the meantime, remote sellers like Amazon will be required to notify Vermont residents of the taxes they owe when making a purchase.

The California Assembly easily passed an Amazon law last week.  That legislation now goes back to the Senate, where a similar bill gained narrow passage last month.  Even if the Senate approves the Assembly’s version of the bill, however, it’s unclear whether Governor Brown will sign the measure.

Louisiana can now be added to the long list of states giving serious consideration to enacting an Amazon law.  The House Ways and Means Committee unanimously passed such a law in late-May, though opposition by Gov. Jindal makes it unlikely that it will be enacted any time soon.

In Texas, Gov. Perry recently vetoed a measure that would have required Amazon.com to collect sales taxes in the state, though the legislature may still try to enact the measure by inserting it into a larger bill that Perry is unlikely to veto. 

Unlike the true “Amazon laws” discussed above, the measure in Texas was designed to prevent Amazon from continuing to skirt its sales tax responsibilities by claiming that its Texas distribution center is actually owned by a subsidiary, and therefore does not amount to a “physical presence.”  The nearby photo is the actual sign in front of the Texas-based distribution center that Amazon claims it does not own.  

In Illinois, the Performance Marketing Association (PMA) has filed a lawsuit challenging the constitutionality of the state’s Amazon law.  The lawsuit is similar to one being pursued by Amazon against New York State.

And in South Carolina, Amazon.com has demanded, and received, a five year exemption from having to collect sales taxes on purchases made by South Carolinians, despite the fact that it plans to open a distribution center in the state (and will therefore meet the Supreme Court’s definition of having a “physical presence”). 

The granting of this exemption represents a stark reversal from just one month ago, when it was soundly defeated 71-47 in the House. 

Brian Flynn of the South Carolina Alliance for Main Street Fairness accurately summed up the unfortunate reality of this situation when he said that “with this economy, [Amazon was] in a good position to strong-arm legislators.”  Fortunately, the exemption is only supposed to last five years — though judging from Amazon’s past behavior, it’s reasonable to expect that the company will undertake an aggressive campaign to extend that five-year window.

The Louisiana Senate is expected to debate a bill this week which would eliminate the state’s personal and corporate income taxes over a five-year period. By the time it’s fully phased in, the proposal would cost the state $4 billion annually.

The House Ways and Means Committee already approved separate measures to eliminate these same taxes. None of the legislation being discussed replaces the revenue that would be lost as result. Note that the state is already grappling with a $1.6 billion shortfall for the next fiscal year.

One might think that Governor Bobby Jindal, who signed into law several significant tax cuts and also signed Grover Norquist's "no new taxes" pledge, is the driving force behind the proposals.

But the plan to eventually create a $4 billion dollar hole in the state’s budget is apparently too radical even for Jindal. The Governor’s spokesman said of the proposal, “We're not going to take it seriously if they don't put together a spending plan.”

Some critics of Jindal on the right argue that some of the tax cuts he signed into law were measures that he initially opposed but then took credit for after he caved in to pressure to support them. Let's just hope that this time, anti-tax lawmakers really have found the limit of Jindal's fiscal irresponsibility.

Louisiana’s Better Choices for a Better Louisiana Coalition is taking on Governor Bobby Jindal and other legislative leaders who have said they aren’t interested in increasing taxes. The Coalition recently unveiled their plan to increase taxes by $900 million to help close next year’s budget gap, which is estimated to be $1.6 billion.   

Eddie Ashworth, director of the Louisiana Budget Project, acknowledges that getting the legislature to raise taxes will be difficult, saying “I think we’re definitely pushing a rock up the hill.”

Still, the Coalition’s balanced approach to the budget shortfall, raising taxes and cutting spending, should appeal to any lawmaker who has ever claimed the title of "moderate." Also, one proposal included in the Coalition’s plan responds to the increasing momentum even in conservative circles for addressing spending in the tax code: a review of the state’s 400-plus tax exemptions, which cost about $7 billion annually.

Earlier this week, the Institute on Taxation and Economic Policy released a new report, Topsy-Turvy: State Income Tax Deductions for Federal Income Taxes Turn Tax Fairness on its Head.  The report highlights an unusual tax break that currently exists in only six states (Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon): a state income tax deduction for federal income tax payments.  Collectively these states stand to lose over $2.5 billion in tax revenues in 2011 due to these tax breaks, with losses ranging from $45 million to $643 million per state.

Unfortunately, the high price tag of this tax giveaway yields remarkably little benefit to low-and middle-income families.  In states where the deduction is uncapped, the best off 1 percent of taxpayers enjoy up to one-third of the benefits from this provision, while the top 20 percent enjoy up to 80 percent of the benefits.  Wisely, several states have eliminated or scaled back this expensive and poorly targeted deduction in the last few years.  North Dakota, Oklahoma, and Utah have all eliminated the deduction, and Oregon lawmakers voted recently to further limit their deduction.

Deductions for federal income taxes seriously undermine the adequacy and fairness of state income taxes. These deductions also leave state budgets vulnerable to changes in federal tax law.  As the recession lingers and states look to enhance their long term fiscal solvency, elected officials in states with a deduction for federal income taxes paid have a real opportunity to close fiscal shortfalls in a way that has minimal impact on low-and middle-income families.

Read the Report

Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.

This week, a broad coalition of 18 Louisiana organizations launched Better Choices for a Better Louisiana. The group is interested in urging lawmakers to take a balanced approach to the state budget by cutting “tax code spending” and not just cutting public services funded through direct spending.

When announcing the coalition, the Louisiana Budget Project's Edward Ashworth called for "a more balanced approach to solving Louisiana's budget problems." Leaders of the group have already called upon legislative leaders to not pass any more tax breaks and to review the effectiveness of the state’s existing tax credits and exemptions.

Last week, the Associated Press took a close look at how local-level tax increases have fared on the ballot leading up to this week’s election.  Out of the 39 states surveyed by the AP, 22 of them held local primary elections or special elections where tax measures were voted on in 2010, and a whopping 19 of those states saw their residents approve more than half of all proposed local tax increases.

Some of the more interesting results highlighted by the AP include the approval of 83% of local tax increases in Louisiana, 72% in Ohio, and 66% in Arizona.  Kansas, Nebraska, and Washington also approved particularly high percentages of local tax increases.

It’s important to note that the AP study was conducted before this week’s election, and therefore doesn’t tell us how local measures fared on November 2.  Moreover, as the AP points out in their review, there is no single source for information on the results of local ballot measures, and even most states fail to publicize local results in a centralized location. 

Unless and until a study of this week’s local measures is completed, we’ll be left to wonder whether trends from earlier this year have continued to hold.  If they have, there could very well be many more stories of local ballot successes like this one in Colorado.

ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.

The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.

Earlier this month the Louisiana Budget Project released a report on state income tax cuts that says "Louisiana’s fiscal chickens are coming home to roost." Put in a less entertaining way, Louisiana simply doesn't have enough revenue to meet the needs of Louisianans and this is likely to be the case for many years to come unless lawmakers act quickly.

One reason for the state's woes is the legislation enacted in 2007 and 2008 that repealed important parts of a 2002 tax reform, commonly referred to as the Stelly plan, after its sponsor, Rep. Vic Stelly. The plan eliminated the state sales tax on utilities, food, and medicine and imposed tax increases on the better-off. The package was initially revenue-neutral, but over time it would have created more revenue for the state.

The report finds, "The revenue loss caused by the Stelly rollbacks, coupled with the impact of the national economic downturn and shortfalls in mineral revenues, leave Louisiana with insufficient revenues to maintain services at current levels at a time of growing needs." LANO estimates, with ITEP's help, that if the Stelly provisions hadn't been repealed, the state might not have faced a budget shortfall in 2010.

This week the Oklahoma Policy Institute released a report urging, among other things, that one of the state’s more ridiculous tax breaks be eliminated — specifically, the state income tax deduction for state income taxes.  This deduction was created not as a result of careful consideration and debate among Oklahoma policymakers, but rather as an accidental side-effect of the state’s “coupling” to federal income tax rules.  And as the New Mexico Legislative Finance Committee politely points out, while the deduction may make some sense at the federal level, the rationale for providing it at the state level is “less clear.”

Citing figures provided by ITEP, the Oklahoma Policy Institute notes that only one out of four Oklahomans would be affected by eliminating this deduction, and roughly 58% of the overall tax hike would be borne by those richest 5% of Oklahomans.  This is a predictable result of the deduction only being available to itemizers.  In total, the state could collect an additional $118 million in revenue each year by eliminating the deduction — revenue that could go a long way toward preserving important public services.

State income tax deductions for state income taxes have been receiving a growing amount of attention.  Last year, Vermont limited its deduction to a maximum of $5,000, while just last week New Mexico Governor Bill Richardson signed a budget eliminating his state’s deduction entirely.  The Georgia Budget and Policy Institute (GBPI) also highlighted the benefits of eliminating this deduction in a policy brief released just a few weeks ago.

In total, seven states currently offer this deduction: Arizona, Georgia, Hawaii, Louisiana, Oklahoma, Rhode Island, and Vermont.  Eliminating the deduction in each of these states is long overdue.

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

A little over a year ago, we told you about a ridiculous law in South Carolina that provided for a sales tax "holiday" on purchases of handguns, rifles, and shotguns (later ruled unconstitutional for technical reasons, though only after the holiday had already taken place).  Little did we know then that the idea would actually catch on.  Louisiana enacted a similar "holiday" last month, upping the ante by exempting not only handguns, rifles, and shotguns, but also bows, crossbows, hunting knives, arrows, ammunition, rifle scopes, holsters, and much more.  Unbelievably, the idea is reportedly receiving attention in Texas and Kentucky as well.

The Louisiana holiday is scheduled to occur each year on the first consecutive Friday through Sunday in September.  During that weekend, neither state nor local sales taxes will be collected on a variety of items the legislature has declared worthy of being included in its "Second Amendment Holiday." 

But it's not hard to imagine how many of those exemptions will pose serious administrative problems.  With some exempt items, such as tree stands, there seems to be little room for confusion.  In other cases however, the state has decided to exempt a variety of multi-purpose items based on whether they were designed, marketed, or even simply purchased for use while hunting (e.g. some items must be designed with hunting in mind, while others need only be purchased by somebody with the intent to hunt).  Items falling into this category include off-road vehicles, animal feed, boots, bags, binoculars, chairs, belts, and various types of camouflage clothing. 

Apparently, according to this list of tax-exempt items, you can look at a bird through tax-free binoculars, but only if you intend to kill it.  Ensuring that these items are really purchased by individuals with "Second Amendment" intentions will no doubt prove impossible.

The bill's official fiscal note hints at a further complication involved with this holiday.  Specifically, it explains that the state will pay retailers $25 for each cash register they re-program to calculate "Second Amendment" items as being tax-free.  On top of that, the state will pay $25 more when the register is re-programmed, back to normal, at the end of the holiday.  Official estimates are that it could cost Louisiana taxpayers up to $100,000 to help retailers make the necessary modifications.  Since the holiday is only expected to result in $263,000 per year in tax savings, this $100,000 cost is not a trivial concern.  And keep in mind, Louisiana taxpayers not purchasing weapons will be helping to pay this $100,000 tab to benefit their soon-to-be well-armed neighbors.

The inevitably complicated nature of sales tax holidays is just one of their many flaws -- as explained in this ITEP Policy Brief.  But despite all their problems, at least typical "back-to-school" sales tax holidays can be interpreted as a misguided attempt to make life easier for families with school-age children.  When it comes to these "Second Amendment Holidays," however, it's hard to see what exactly lawmakers are trying to gain, other than a pat on the back from the NRA.

Like just about every other state in the nation, Louisiana faces a serious budget deficit, one that some analysts believe could reach as much as $2 billion (almost one-fifth of its general fund budget) in the coming year. Unlike other states, though, Louisiana has an option for closing a substantial portion of that gap that would not entail cutting spending below current levels or raising taxes above what people currently pay.

What is this seemingly "free lunch"? Well, policymakers in Louisiana could significantly shrink the projected deficit by cancelling -- or at the very least, suspending -- the substantial tax cuts that have been enacted over the last two years but that have yet to take effect. In July 2007, Louisiana adopted a change in its personal income tax that will ultimately allow some Louisianans to reduce their incomes for state tax purposes by the full difference between their federal itemized deductions and their federal standard deduction (often referred to as "excess itemized deductions"). That change was to be implemented in three stages, with the final stage scheduled to occur this year.

In June 2008, the state made another change to the income tax, expanding the bottom tax bracket so that more of people's incomes would be taxed at a rate of 2 percent instead of the top rate of 4 percent. While this latter change was far more significant in size, it was also delayed in effect; Louisiana residents won't see any change in tax withholding until July.

Repealing these cuts -- or delaying them, as Lieutenant Governor Mitch Landrieu recently advocated -- would bring in at least $350 million more in tax revenue each year than is now expected, yet the level of taxes Louisianans would pay would stay exactly the same as it is today.

For more about Louisiana's budget situation, visit the Louisiana Budget Project's web site.

We've recently highlighted a variety of progressive revenue raising options gaining serious attention in New York and Wisconsin. This week we bring you yet another idea that's recently been the subject of debate, though this one applies to fewer states. Those seven states still offering income tax deductions for federal taxes paid (i.e. Alabama, Iowa, Missouri, Montana, North Dakota, Louisiana, and Oregon), should immediately repeal, or at the very least dramatically scale back, that deduction.

The federal income tax deduction takes what is perhaps the best attribute of the federal income tax -- its progressivity -- and uses it to stifle that very attribute at the state level. Since wealthy taxpayers generally pay more in federal taxes than their less well-off counterparts, allowing taxpayers to deduct those taxes from their income for state income tax purposes is a gift to precisely those folks who need it least. And since most state income tax systems possess a degree of progressivity, those better-off taxpayers who face higher marginal tax rates are benefited even more by being able to shield their income from tax via this deduction.

Iowa Governor Chet Culver most recently drew attention to this problem while urging lawmakers this week to end the deduction. The idea has also recently garnered attention in Missouri, where ITEP recently testified on a bill that would, among other changes, eliminate the deduction. Finally, another bill making its way through the Alabama legislature seeks to end the deduction for upper-income Alabamians.

With three of the seven states that still offer this deduction considering its elimination, this is definitely one progressive policy change to keep an eye on.

States' collective fiscal outlook appears to be quite dim and could get even darker in the months ahead according to a report released this week by the National Conference of State Legislators (NCSL). The report notes that, in the aggregate, states experienced a $40 billion budget gap for fiscal year 2009, a chasm that has been bridged largely through reductions in spending.

Not every state's budget is shrouded in gloom, however. Some states derive significant revenue from severance taxes (taxes imposed on the extraction of natural resources like oil and natural gas) and have economies closely tied to these industries. These states, Louisiana, North Dakota, and Wyoming for example, are enjoying substantial budget surpluses.

Given the volatility of energy markets, these surpluses are likely a temporary phenomenon, but that hasn't stopped states from considering and enacting tax cuts that would permanently reduce revenue. Earlier this year, Louisiana briefly weighed the idea of repealing its income tax altogether, only to settle on an oh-so-modest annual cut of $300 million. North Dakota has not only revived its property tax debate from a few years ago, but may also place on this November's ballot a measure that would slash the personal income tax by 50 percent and the corporate income tax by 15 percent. In this context, a plan backed by West Virginia Republicans to completely exempt groceries from the state sales tax appears far more reasonable in scope - and would certainly help to improve the progressivity of the state's tax system. However, it would still likely leave the Mountain State with inadequate revenues once oil and gas prices come back to earth.

Perhaps the most responsible - and fair - approach to surpluses generated by skyrocketing severance tax revenue comes from New Mexico, where Governor Bill Richardson this past week put forward a proposal to dedicate the majority of the state's projected $400 million surplus to one-time tax rebates and to highway construction. Richardson's proposal does contain some permanent changes in tax law, such as an expansion of the state's working families tax credit, but they appear to be targeted towards those low- and moderate-income taxpayers who are facing the greatest challenges from the nationwide foreclosure crisis and from rising fuel and food prices.

Policymakers in Louisiana this week took one of the final steps towards enacting an unfair and unaffordable personal income tax cut. On Wednesday, the House of Representatives unanimously approved SB 87, a measure that would repeal one more element of the landmark 2002 Stelly Plan, returning the level at which a married couple's income becomes subject to the state's top income tax rate of 6 percent from $50,000 to $100,000. (Single people will also derive some benefits from the bill, as it would push back the start of their top bracket from $25,000 to $50,000.)

As new reports from the Louisiana Budget Project (LBP) and the Institute on Taxation and Economic Policy (ITEP) show, however, SB 87 not only ignores the Bayou State's perilous long-term fiscal condition, but also the impact of its current tax system on low- and moderate-income Louisianans. While Louisiana may be temporarily flush with revenue due to escalating oil prices, as LBP points out, general fund revenue is expected to decline by 1.5 percent on average over the next four years; indeed, the Public Affairs Research Council of Louisiana further notes, "even if oil prices remain high, state revenues are projected to drop by $377 million from 2009 to 2010". Cutting personal income taxes by $300 million or so, as SB 87 would do, would only add to Louisiana's long-term fiscal woes.

SB 87 also directs the vast majority of its benefits to the most affluent taxpayers in the state, when those taxpayers already pay a much smaller portion of their incomes in taxes than working Louisianans do. Roughly 75 percent of the tax cut that would be spawned by SB 87 would go to the wealthiest fifth of Louisianans, while taxpayers in the bottom two-fifths of the income distribution would see virtually no change in their taxes. Conversely, as ITEP's latest analysis demonstrates, the poorest 40 percent of non-elderly Louisianans paid upwards of 12 percent of their incomes in state and local taxes in 2006, while the very best-off one percent paid the equivalent of just 6.4 percent of their incomes in state and local taxes. Of course... and leaving questions of fiscal responsibility aside -- far more progressive options for cutting taxes (such as reducing Louisiana's sales tax rate or lowering its bottom income tax rate) were available to the members of the Louisiana House, if only they had chosen to pursue them.

The House's version of SB 87 must now be reconciled with the version passed by the Senate earlier this year, but few should expect this to improve the measure any. The version passed by the Senate ultimately would have repealed the income tax in its entirety, making the House's approach seem positively responsible and equitable in comparison.

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.

In the eyes of most fiscal policy experts, there are a few commonly accepted principles for judging tax policy -- neutrality, horizontal and vertical equity, and enforceability, to name a few. Apparently, in the eyes of one Louisiana legislator, "cutesy" now ought to be added to the list.

As the New Orleans Times-Picayune reported earlier this week, Sen. Joe McPherson apologized to his colleagues for casting the deciding vote in favor of an amendment to repeal the state's income tax, which currently yields nearly $3 billion per year. It seems that the Senator expected the amendment to lose, but "wanted to be on the record as doing away with income taxes." He later owned up to being "cutesy" with his vote.

The bill that Senator McPherson and his colleagues voted to amend would have repealed yet another element of the 2002 Stelly plan, which substantially improved the fairness of Louisiana's tax system. Just last year, Pelican State lawmakers voted to reinstate the "excess" itemized deductions that had been eliminated as part of the Stelly plan, a move that cost the state more than $150 million in tax revenue annually and that benefits only the wealthiest 20 percent of taxpayers.

The bill being debated now was intended to raise the income tax brackets that had been lowered under the Stelly plan. It would have (before being amended) reduced state revenue by roughly a quarter of a billion dollars per annum and, despite the claims of proponents, yet again help the most affluent. As the Times-Picayune notes, the bill's proponents portray it as a prototypical "middle-class tax cut", but preliminary estimates from the Institute on Taxation and Economic Policy indicate that more than 70% of the benefits from changing Louisiana's income tax brackets would accrue to the wealthiest fifth of taxpayers.

Louisiana is the number three film producing state in the nation, but behind the multi-million dollar films and flashy actors lies the dirty side of what can only be called the state's tax credit industry. As explained by an article in the magazine Fast Company, the FBI is investigating whether or not a company was improperly granted film production tax credits, which in Louisiana can be converted to cash by resale to another party that pays state taxes. One credit granted was worth more than the entire budget of the film produced. In 2002, when the state first developed these credits there wasn't even a system in place for the independent auditing of expenditures.

Louisiana's former Film Commissioner, Mark Smith, is currently under investigation and, in a perhaps predictable twist, now works for the movie industry. The lack of oversight is not the only reason to question the whole idea of tax credits for film production. Their impact on economic development is questionable, particularly since nearly all states now have some type of film tax credit.

Louisiana's 8-week legislative session came to a close late last month and Governor Kathleen Blanco has signed a variety of bills into law. HB 365 allows state income tax filers to claim the same itemized deductions they claim on their federal returns. The problem is, only the wealthiest 20 percent of Louisianans itemize. The estimated $157 million the provision will cost could be put to better use. SB 3 provides a "sales tax holiday" on the first Friday and Saturday in August and applies to the first $2,500 spent by consumers.The bill makes the holiday permanent and was introduced as a "back-to-school" benefit.The only improvement in tax fairness isSB 341, a progressive bill that provides for a refundable state Earned Income Tax Credit (EITC), equal to 3.5 percent of the federal EITC.This will distribute $40 million in refunds to low-income Louisianans (about 29 percent of all filers) on Tax Day.

Louisiana's 2007 legislative session came to an end yesterday. Fueled by large projected budget surpluses, lawmakers spent the session pondering all sorts of options for tax cuts, ranging from smokestack-chasing tax giveaways to tax breaks for struggling artists. In the end, lawmakers took an important first step towards tax fairness by enacting a refundable Earned Income Tax Credit, thanks in part to the work of the Louisiana Budget Project. But legislators took a step backwards as well, expanding the ability of the wealthiest Louisianans to claim the same itemized deductions they took on their federal tax forms. This move is estimated to benefit only 20 percent of Louisiana families. Left to be seen is whether Governor Kathleen Blanco might veto these high-end cuts.

Over the past few weeks, three more states have taken steps towards helping low-wage workers and their families by means of the earned income tax credit (EITC). In Delaware, the Senate Revenue and Taxation Committee recently approved a measure that would make the state's existing EITC refundable, meaning that individuals and families who owe less in personal income taxes than the value of their EITCs would receive refund checks to help offset other taxes and to make it easier to make ends meet. In Oregon, Republican and Democratic members of the House Revenue Committee have put forward a proposal that would raise that state's EITC from 5 percent of the federal EITC to 12 percent. As the Eugene Register-Guard observes this proposal would help to achieve a vital goal - eliminating income taxes on working families living in poverty in Oregon. Lastly, the Louisiana Senate has passed legislation that would create a state EITC equal to 5 percent of the federal EITC. This report from the Louisiana Budget Project details the positive impact that such a credit would have.

June brings the start of a new hurricane season, and this year some Gulf states are turning to a new tool to try to help residents cope: the tax code. This week is host to Florida's third annual sales tax holiday on hurricane preparedness supplies. Louisiana offered a temporary sales tax holiday in the aftermath of Hurricane Katrina last year, and now some lawmakers are pushing to make it an annual event. However, it is not known how much, if any, benefit shoppers receive from such sales tax holidays. Why would a store offer a 10% discount when shoppers are coming in to avoid paying the four percent state sales tax? Given the serious nature of hurricanes, the burden of proof is on lawmakers to show that this holiday will do what they say it will. People in the Gulf states deserve more than a three-day gimmick.

Last week there were three states offering competing tax incentives for a new ThyssenKrupp steel mill. Now there are two; ThyssenKrupp has taken Arkansas out of the running, leaving Alabama and Louisiana as its final two candidates. In a press release announcing the move, the company explained its rationale for dumping Arkansas: "geological conditions, energy costs and logistical disadvantages." Notably absent from its explanation: tax breaks.

And elected officials in the two remaining states seem to agree that non-tax factors set one state apart. Louisiana Governor Kathleen Blanco boasts and, Alabama Governor Bob Riley openly admits, that Louisiana has geographic advantages that Alabama can't match.

But Riley and some state lawmakers are pushing for a special legislative session later this month that would be devoted entirely to creating a new fund for tax incentives for ThyssenKrupp and other companies the state is currently courting. If this sounds like a devious subversion of market forces, it is ... but Louisiana already did the same thing back in December, creating a $300 million fund to court the steelmaker.

How can states short-circuit this self-destructive competition of tax giveaways? Lessons might be learned from efforts by European Union members to prevent tax competition that distorts market forces, which culminated this week in an EU statement that Switzerland must curb its corporate tax giveaways.

ITEP Report: Louisiana's 2006 Special Legislative Session - Assessing Income Tax Reform Options

Louisiana lawmakers currently face a pleasant dilemma: how to dispose of a short-term budget surplus exceeding $2 billion. This analysis looks at the overall fairness of Louisiana's tax system, and assesses the impact of two proposals on Louisiana tax fairness.