Tuesday, June 2, 2015

Tuesday, June 2, 2015

House rejects relief for working poor; EITC is crucial for bridging income inequality; A step toward Medicaid expansion; and State agencies fall short in tax incentive reporting


House rejects relief for working poor

Less than a week after agreeing to phase out nearly $1 billion in corporate taxes, the House on Monday narrowly failed to pass a much smaller tax break for low-income working families with children. House Bill 70 aims to double Louisiana’s Earned Income Tax Credit (EITC), which encourages work and has been shown to improve school performance and boost lifetime earnings for children in poor families, as LBP explained in a recent blog post. Tyler Bridges with the Advocate has details:


Louisiana House members this year have passed tax breaks for corporations, investors renovating historic property and even bakery owners. On Monday, they narrowly drew the line at giving a bigger tax break for the working poor. The House defeated a proposal to double the state Earned Income Tax Credit on a 48-49 vote. The measure needed 53 votes to pass. “I recognize that many legislators would rather give away incentives to business than to working people,” state Rep. Walt Leger, the bill’s sponsor, said afterward. The Louisiana Budget Project, a Baton Rouge-based nonprofit that favors a more progressive tax system, said in a report that Leger’s bill would benefit the estimated 515,000 families in Louisiana that have claimed the credit in recent years. The group noted that Louisiana has one of the most regressive tax systems in the country, meaning that poor people pay a greater percentage of their income in taxes than do the wealthy. Leger, D-New Orleans, argued that his measure would help make the tax system fairer.


Louisiana has the smallest state EITC in the country at 3.5 percent of the federal credit. HB 70 would double that to 7 percent, still far short of the national average of 16 percent of the federal credit.


EITC is crucial for bridging income inequality
On the same day the House turned down an opportunity to help low-wage workers raising children, Erica Williams with the Center on Budget and Policy Priorities laid out even more evidence supporting a stronger EITC:


Growing income inequality is a huge challenge facing the nation, and a new study by the Federal Reserve Bank of Boston shows that state earned income tax credits (EITCs) can play a major role in addressing it. The study first shows that the federal income tax code works to close the income gap between the top and bottom by taxing households based on their income. It then measures how much state tax systems either widen or narrow that gap. The authors find that, on average, state taxes widen inequality. In half of the states, however, the tax system narrows the gap — and state EITCs play an important role in that narrowing.


The tax relief of the EITC is especially needed in Louisiana, which has the third highest sales tax rate in the nation. This puts a big burden on the poor, who on average pay 10 percent of their income in total state and local taxes, compared to less than 5 percent for the wealthiest households. In short, Louisiana taxes many of its working families with children into poverty–a course that is avoidable.


A step toward Medicaid expansion
The Louisiana Senate passed a resolution sponsored by House Speaker Chuck Kleckley on Monday that puts in place a framework to fund an expansion of health coverage for the working poor, if the next governor so chooses to pursue it. Melinda Deslatte with the Associated Press has the story:


“At least it gives us some opportunity for the future,” said Sen. Ben Nevers, D-Bogalusa, who has tried unsuccessfully to persuade his colleagues to embrace an expansion proposal. The financing mechanism offered under Kleckley’s legislation requires a decision quickly. It expires if Louisiana’s governor doesn’t expand the Medicaid program by April 1, 2016. Republicans who voted for the legislation sought to downplay any connections to the Medicaid expansion, though the hospital financing tool can only be used under such an arrangement. Sen. Sherri Smith Buffington, who handled the legislation in the Senate for Kleckley, told senators it wouldn’t lock the next governor’s administration into a specific model for a Medicaid expansion – or into doing the expansion at all. When he pushed for the measure, Kleckley, R-Lake Charles, said it could help the state’s budget, saving $100 million to $200 million a year in state spending on health care that could be covered through the Medicaid expansion funds. Those dollars, he said, could be shifted to other areas.


State agencies fall short in tax incentive reporting
Every year, health care and education programs are combed over by legislators as they try to balance the state budget. But tax incentive programs rarely face such scrutiny. A 2013 law–Act 191–aimed to change that by requiring state agencies that administer incentive programs to report on their effectiveness and return on investment. Unfortunately for those who care about transparency, agencies haven’t exactly risen to the occasion, according to the Legislative Auditor. The Advocate’s Marsha Shuler breaks it down:


The auditor’s compliance report found the agencies’ response sorely lacking. Seventy-nine incentives are administered by six agencies subject to reporting requirements, the auditor said…“Of the 79 tax incentive reports agencies were required to submit to the Legislature by March 1, 2014, 70 (89 percent) reports were either not submitted or did not comply with all of the reporting requirements,” the auditor said…“Based on the amounts provided in the 2013-2014 Tax Exemption Budget, these 70 tax incentives claimed in fiscal year 2013 for which agencies provided no information to the Legislature or did not comply with reporting requirements totaled approximately $1.1 billion,” the report said.


Number of the Day


$47 million – Total amount an increase in Louisiana’s Earned Income Tax Credit would put back in the pockets of working families, making work pay and helping them provide basic needs for their children (Source: Legislative Fiscal Office)