Tax Justice Digest stories about Louisiana
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;
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.
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
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.
Policymakers in
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
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.
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
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
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
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
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.
