Expand the EITC

Legislators will soon be tasked with solving a mid-year deficit of at least $700 million and a $1.9 billion shortfall for the next fiscal year. Tax increases are inevitable and lawmakers must ensure hard-working Louisiana families who make low wages aren’t disproportionately hurt by revenue raising measures. In a new blog, LBP’s Grace Reinke explains why expanding the the Earned Income Tax Credit  is the best way to do that. The EITC is a credit that incentivizes work by phasing in the benefit amount as workers earn more, flattening at a maximum level as workers’ earnings continue to rise, and phasing-out slower than it phased-in.

According to (The Institute on Taxation and Economic Policy), a 1-cent sales tax hike translates to a $85 per year in additional taxes for workers in the bottom-fifth of income earners, who make an average of $12,000 per year. For workers in the next quintile – who make between $19,000 and $32,000 per year, it means $184 per year in additional costs.But if the higher sales tax is coupled with a stronger EITC, roughly half the households in the two bottom brackets would qualify for an offsetting credit of more than $100 for most families. Doubling Louisiana’s EITC would also allow the new governor to fulfill one of the key promises he made as a candidate as part of his broader anti-poverty agenda.

Dardenne deserves his pay

Commissioner of Administration Jay Dardenne is being paid $30,000 more than his predecessor. While much has been made of Gov. John Bel Edwards decision not to lower salaries of cabinet positions that he called “exorbitant” on the campaign trail, Advocate columnist Lanny Keller believes Dardenne’s salary is a wise investment.

With a budget crisis that is more severe than in a generation, Dardenne demonstrated that he is not just a Republican face on the Division’s challenges. His lucid description of the problem, and grasp of the intricacies of the budget and its process — he is a former lieutenant governor and Senate Finance Committee chairman — makes the strongest possible case for the administration. He outlined on Monday for the Press Club of Baton Rouge the dimensions of the budget problem and — more clearly than Edwards himself — Dardenne talked about the huge differences between the current fiscal year ending June 30 and the longer-term crisis facing the budget year beginning July 1. The two crises have been conflated in the public eye because they come so close together, but they represent different challenges. Cuts to the tune of $700 million, coming so late in the fiscal year, are a managerial crisis of staggering dimensions and one that will require Edwards’ team to violate their own inclinations — a short-term sales tax is about the only way to generate new money quickly enough, Dardenne said, although significant cuts also will be necessary. The next year’s budget is the one that Dardenne by law must present in two weeks, and it will be ugly because the Legislature has not yet been able to meet and either authorize cuts or raise revenues. It will make cuts by necessity that no one wants to see happen, Dardenne said. That budget will be shock therapy for the political system, as the state is down by about $1.9 billion in a general fund that is only about $9 billion — not the $25 billion global number, including federal funds and pass-throughs, used by GOP critics of tax increases.

U.S. ranked last on poverty and inequality

Using a wealth of data on poverty, employment, income and wealth inequality, economic mobility, educational outcomes, health inequality and residential segregation, the Stanford Center on Poverty and Inequality has ranked the Unites States dead last among its peers.

The research shows that, among the well-off countries for which comprehensive evidence is available, the U.S. has the lowest overall ranking, a result that arises in part because the U.S. brings up the rear in safety net performance, income inequality and wealth inequality. When the comparison set is expanded to include other less well-off countries, America still ranks 18th (out of 21 countries), with only Spain, Estonia and Greece scoring worse.

It’s not all doom and gloom. The report offers one relatively easy solution:

The report also notes some bright spots. It shows, for example, that a relatively moderate increase in U.S. safety net spending would push the poverty rate down to levels observed in other well-off countries. The rate of disposable-income poverty, which is the rate that people actually experience after transfers play out, is especially high not because market incomes are all that low but because the safety net is relatively small. “This is good news,” Grusky said, “because in principle it is easier to reform the safety net than to attempt to retool the economy in ways that would deliver higher market incomes.”

Justice not being served

The  Nola.com/Times-Picayune editorial board is weighing in on the “raise the age” campaign, writing that requiring 17-year-olds be treated as adult offenders and sent to adult jail is a bad approach to justice. The practice has both moral and budgetary implications.

“These kids are not threats to public safety,” said Stephen Phillippi, an LSU professor who authored a study requested by the Legislature on raising the juvenile age. Being labeled as an adult offender for a youthful mistake can stick with people for life, affecting their ability to get an education, join the military or get a decent job. Spending even a short time in an adult prison could put 17-year-olds at risk of violence from older inmates and turn them into hardened offenders. Mr. Phillippi said the states that have most recently changed their juvenile offender age to 18 — including Mississippi in 2010 — have had smooth transitions and have in some cases saved money. It is more expensive to house a juvenile offender on a daily basis, but they typically are released sooner than adult offenders, advocates say. In addition, there are some 17-year-olds who shouldn’t be locked up at all. They should be in community-based education or treatment programs.

LBP is hiring!

The Louisiana Budget Project is looking for a bright, motivated professional who wants to make a difference in Louisiana’s challenging policy environment. The senior policy analyst will lead our work on health care and tax reform. Click here for a full job description or email Jan Moller at jan@labudget.org for more information.

Number of the Day:

4.2 – the percentage of income that the richest 1 percent of Louisiana households  paid in state and local taxes last year. (Source: ITEP)