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The tax bill and the fiscal cliff

Posted on January 8, 2018

While the tax overhaul signed into law by President Donald Trump last month will drain at least $1.5 trillion in federal revenues over the next decade, it will have the opposite effect in Louisiana, thanks to an unorthodox tax deduction embedded in the state constitution. Louisiana is one of just three states that allow residents to deduct their federal taxes on their state returns. Louisianans will pay less federal income taxes under the new law, which means less money to deduct on their state income taxes and more money for the state. While estimates are hazy on how much money the change will generate, it won’t be nearly enough to solve the $1.5 billion budget shortfall looming on July 1. The Advocate’s Elizabeth Crisp:

The federal deductibility is Louisiana’s largest income tax break and cost the state nearly $1.1 billion in 2016. … A task force that was formed to come up with recommendations for shoring up the state budget recommended that Louisiana eliminate or scale back the deduction, but lawmakers haven’t embraced the proposal, along with others from the blue ribbon panel. In addition to the three states that allow entire deductions, three others have similar deductions that are capped.

Gov. John Bel Edwards has set a Jan. 19 deadline for legislators to agree on a package of tax changes to replace the temporary “clean penny” of sales tax that expires June 30. House Speaker Taylor Barras told the AP’s Melinda Deslatte that House leaders may need more time.

Barras is meeting with the governor Monday to continue talks. … The governor wants to raise enough taxes to offset the expiring ones, to keep money flowing to government operations. House GOP lawmakers have blocked similar tax ideas when they were proposed last year. Edwards is trying again, recommending a package of sales and income tax changes that would raise or maintain higher taxes for certain businesses and middle- and upper-income earners and let a temporary 1 percent state sales tax hike expire.

The inimitable Jim Beam of the Lake Charles American-Press writes that it’s time for the Legislature to work with the governor to find a solution.

These back-and-forth, long-distance exchanges haven’t served anyone well. The citizens of Louisiana have been denied the representation they deserve far too long. Leaders in the Legislature from both political parties need to start working together and reach a consensus with the governor on what it will take to permanently fix the state’s financial instability.

 

Work vs. wealth

The next few months are likely to bring spirited debates about the welfare reform, as conservatives in Washington and Baton Rouge seem determined to impose work requirements on low-income people seeking food and medical assistance. But what about the idle rich? As Elizabeth Bruenig points out in a column for The Washington Post, people at the top of the income pyramid (earning more than $10 million per year) soak up plenty of government subsidies, even though very little of their income is derived from actual work.

In other words, the well-to-do already do what workfare advocates seem so nervous about: rake in money they haven’t earned through market labor and thrive off the government’s largesse. Perhaps that itself is unfair — so why duplicate it on the other end of the economy? Put simply, it seems ludicrous at best and sadistic at most to start one’s fairness policing from the bottom up. If we mean to transform our economy into one in which people earn precisely what they work for and no more, and receive nothing from the government lest their work ethic wither, it would be best to start from the top down, where nobody runs any risk of starvation or homelessness if they lose their benefits.

 

Nursing home reforms needed

Louisiana’s nursing home industry has long been one of the most powerful interest groups at the state Capitol. Their political clout is a major reason why the Medicaid reimbursements paid to nursing homes have increased every year, even as other health care providers saw cuts in their rates. But if you ask nursing home owners, they’ll insist that their rates are some of the lowest in the country. How can that be? Hugh Eley, who recently retired from a career overseeing long-term care for the state health department, unpacks the mystery in a guest column for The Advocate.

Even a low rate can be highly profitable if costs are low. It works like this. Louisiana Department of Health sorts the costs reported by nursing homes into five groups: direct care (e.g., salaries of nurses, nurse aides, etc.), care-related (e.g., supplies, food, etc.), administrative, capital and pass through. For direct care, care-related and administrative costs, officials next determine the median cost in each group. So half the homes have higher costs and half have lower costs. They then multiply each group by a factor written into law. These range from 107.5 percent for administrative to 112.4 percent for direct care and care-related. Here’s how the “low” rate is misleading. Direct care and care-related are the largest costs, and of that 112.4 percent multiplier built into the rate, facilities only have to spend 94 percent. That leaves a potential profit of 18.4 percent. Pretty sweet.

 

Local option on gas tax?

The state legislator who led last year’s failed effort to raise the state gasoline tax has a new idea for raising revenue for much-needed infrastructure repairs: Let local communities decide the issue for themselves. The Advocate’s Will Sentell reports that Rep. Steve Carter of Baton Rouge is floating the idea of a constitutional amendment that would give local communities the option of raising the gas tax to fund transportation upgrades. The long-shot effort comes after legislators rejected a bid to raise the statewide gasoline tax for the first time since 1990.

Carter’s plan, like the failed hike in the statewide gas tax, faces huge hurdles in the Legislature. As a constitutional amendment, it would require the support of two-thirds of the Louisiana House and Senate, and a majority of voters statewide, to take effect. Liz Smith, senior vice president of economic competitiveness for the Baton Rouge Area Chamber, said her group does not want 2018 to go to waste. “In the capital region, we cannot afford to wait,” she said. Traffic gridlock is causing twin problems, she said. One is luring firms to the area. The other is traffic obstacles to hauling goods. However, Smith said BRAC officials, who backed last year’s gas tax push, are not ready to support Carter’s plan or others. “We are looking at what our options are,” she said.

 

Number of the Day

87 – Percentage of able-bodied adults covered by Medicaid expansion who are working. Of the non-workers, 75 percent are full-time caregivers (Source: National Health Interview Survey via The Washington Post)

 

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