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Oct. 13: Closing the private school loophole

Posted on October 13, 2016

Louisiana policymakers face many tough decisions as they work to restructure the state’s broken tax system and raise enough revenue to protect vital services. But one issue that shouldn’t be controversial is getting rid of a tax loophole that lets wealthy people and businesses reap a risk-free profit on donations they make to private school scholarships. A new report from the nonpartisan Institute on Taxation and Economic Policy shows how Louisiana’s loophole (and others like it across the country) allow people to avoid state and federal taxes while redirecting money meant for public K-12 schools to private institutions. Through this tax loophole, high-income Louisiana “donors” can reap up to a 28 percent risk-free profit from their “donation.” As ITEP notes:

 

Because of the ways that state and federal tax law interact, the subsidies offered in ten of these states turn the concept of a charitable “donation” on its head by offering upper-income taxpayers a risk-free profit on contributions they make to fund private school scholarships.  In these cases, even taxpayers who would not ordinarily be interested in contributing to private schools may find the incentive too strong to ignore. …

 

While many states offer variations of this loophole, Louisiana’s is among the most generous:

 

Other states with particularly lucrative scholarship tax benefits include Arizona and Virginia, where business owners are eligible to receive tax credits without limit, and Louisiana where neither individuals nor businesses face a firm cap on their maximum annual tax credit. First, while most states prohibit taxpayers from claiming a state-level charitable deduction for donations that were also eligible for a state tax credit, three states (Louisiana, Oklahoma, and Virginia) actually allow this type of double dipping.

 

Economic inequality is worse than you think

New research suggests that the ability of Americans to move up (or down) the economic ladder may be more constrained than we previously thought. The researchers looked back to 1910 to see how wealth changed between different generations of the same family, and their findings challenge the American “bootstrap” narrative of economic success. Ana Swanson of The Washington Post has more:

 

In the past, researchers have overestimated the amount of social mobility in American society because they had a limited amount of data to study, (Joseph) Ferrie (of Northwestern University)  and his colleagues argue. Much scholarly work has been done examining how inequality has persisted between parents and children since the 1960s and beyond, but researchers have lacked data on previous generations. That limited historical insight is a problem, says Ferrie, because families can see one-generation fluctuations in education and income. For example, suppose you have a banker whose son decided to become a poet, surrendering a huge income in favor of a more fulfilling career. But the poet’s daughter decides to go back to the family business and become a banker.

Prison to bankruptcy pipeline

People who’ve served time in prison often face crippling debts when they return to freedom thanks to fines, fees and other costs that make it hard for people to rebuild their lives. Writing in Slate, Larry Schwartztol and Abby Shafroth share the story of David Silva, who served 38 months in a New Jersey prison only to face $35,000 in debts upon his 2006 release:

 

He didn’t owe this money to private creditors; he was in debt to the government for his prosecutions and stints in prison. Silva’s debts for “use” of the criminal justice system included public defender fees, various surcharges that went to things such as police uniforms and drug-use prevention, and probation supervision fees, as well as restitution and fines. Silva’s debts also included about $10,000 for substance abuse treatment he received in prison. Though he was working full-time when he got out, the amounts owed were crushing and were a barrier to meeting his basic needs. His debt also precluded him from getting a driver’s license, which only made it harder for him to get back on his feet. Silva ultimately filed for bankruptcy.

Louisiana’s anti-marriage law

Columnist Jarvis DeBerry weighs in on the 2015 state law that was designed to crack down on the nonexistent problem of “marriage fraud” but instead ended up keeping legal immigrants from being able to tie the knot in Louisiana.  

 

Jindal and the Legislature are the reason that Out Xanamane and Marilyn Cheng had to leave their home in New Iberia to travel to Alabama to get legally married.  As The Washington Post reported Monday (Oct. 10), because Xanamane was born in Laos and doesn’t have a birth certificate, he was barred from marrying the U.S.-born Cheng in Louisiana.  So they traveled to the more progressive state of Alabama to tie the knot. Requiring birth certificates for nuptials was the bright idea of Rep. Valarie Hodges who presented the legislation as a way to prevent “marriage fraud,” which occurs when a person marries a U.S. citizen just to get a green card.  It’s unclear how Rep. Hodges thought this bill would address that problem.  

Number of the Day

18.78– The rate of gun-related deaths per 100,000 people. Louisiana was the deadliest state for gun violence from 2005-2014 [Source: Center for American Progress]

 

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