Friday, March 11, 2016

Friday, March 11, 2016

Special session: Who pays?; The poor pay more; How did we get here? and; GOP Primary: The establishment is winning

Special session: Who pays?
After weeks of dawdling, the Legislature passed roughly $1 billion in taxes during an 8-minute frenzy as the clock was about to expire on the Special session. When it was over, lawmakers managed to fill all but between $30 – $50 million of the $900 million mid-year shortfall by raising a variety of sales taxes, including one penny of state sales tax and increasing taxes on alcohol and tobacco. Rebekah Allen of the Advocate has the breakdown.


The increase of a single penny to the state sales tax rate is the most costly increase. The state sales tax rate is going from 4 cents to 5 cents, but that’s coupled with the local sales taxes. On average, the combined local sales tax rate is about 5 percent, which means consumers will end up paying about a dime for every dollar they spend on most goods and services in Louisiana… For a worker who earns between $19,000 and $37,000 a year, he or she will pay an average of $210 more dollars in sales tax dollars for a 1 percent sales tax increase, according to the Institute on Taxation and Economic Policy. For someone who earns between $103,000 and $209,000 a year, the average tax change will be $567.


The Advocate’s editorial board is not happy with the results, likening the end of the session to a “maddening meat-grinder” and a “drunken game of living room charades” and singling out the House GOP for blame.


The anarchy in the House proved an inauspicious debut for Barras, who had been touted as a unifier. Instead of forming a clear philosophical alternative to Edwards’ plans, Barras and company created the policy equivalent of a food fight. Come Monday, they’ll do it all over again at the State Capitol, as the regular session begins. We hope that lawmakers do better. The good news is that they can hardly do worse.


The poor pay more
Being poor in America doesn’t just mean having less money for necessities than most people. It also means paying more for basic things like toilet paper, according to research by University of Michigan professor Yesim Orhun and Ph.D. student Mike Palazzolo. That’s because wealthier consumers can afford to buy such things in bulk, or wait for a sale, while the poor usually end up buying the basics in smaller increments. Emily Badger of the Washington Post illustrates:


It’s expensive to be poor. Or, to state the same from another angle: Having more money gives people the luxury of paying less for things. In the case of toilet paper, or any number of other storable goods like canned tomatoes, rice or paper towels, shoppers have to pay more up front to reap savings over time. And the poor often can’t afford to do that — to pay $24 for a 30-pack instead of $5 for a four-pack. Then, because they can’t stock up, they can’t afford to wait until the next sale comes around. When the toilet paper runs out, they have to run to the store for another small quantity of it — whatever it costs in that moment. Because they can’t use one money-saving strategy, they can’t use the other, either. “You can create a poverty trap even around the toilet paper that we study,” Orhun says. Middle-class consumers behave quite differently, she adds. “They buy when the price is right and wait when the price isn’t. But poor people don’t have that luxury.”


How did we get here?

Why are states like Louisiana, Kansas, North Dakota and Oklahoma struggling economically while the U.S. economy is healthy – with jobless rates at their lowest level in eight years and the federal budget deficit narrowing? Alana Semuels of The Atlantic reports it’s because of misguided policy decisions that provide generous subsidies to business and tax cuts for the wealthy while doing little for those in the middle and at the bottom.


What’s happening across the country is that state legislatures have made decisions about taxation that don’t jive with the 21st-century economy. They’ve tried the supply-side model pushed by Reagan economist Arthur Laffer, who said cutting taxes could help spur job growth and spending to such a degree that revenue would not be significantly affected. They’ve found that this theory has not played out, and that although the recession is over, they’re still cash-flow negative. For example, in an era of rising income inequality as the rich get richer, many states retain flat tax rates and can’t reap more money from those at the top of the economic ladder. Illinois, for instance, is one of eight states with a flat income-tax rate. (The state’s income-tax rate was 5 percent, but was lowered to 3.75 in 2015. That means someone making $500,000 a year in Illinois would pay just 3.75 percent in taxes, and someone making $50,000 would pay 3.75 percent as well. Minnesota, by contrast, taxes its lowest income bracket 5.35 percent, and taxes people making more than $258,261 at a rate of 9.85 percent.


GOP Primary: The establishment is winning
There has been much hand-wringing on the right about the ascendant candidacies of Donald Trump and Ted Cruz, neither of whom has much support among the deep-pocket donors, consultants and elected officials who loosely make up the Republican establishment. But as Matt O’Brien notes in The Washington Post, a look at the candidates’ tax plans suggest economic elites will do just fine under Trump or Cruz.


If this is a revolution, though, it’s a funny kind of one. That’s because the new boss sure does look a lot like the old boss, at least when it comes to what the Republican establishment cares about the most. And that’s cutting taxes for the rich. Indeed, the two “anti-establishment” candidates are even more orthodox on this than the establishment ones. You can see that in the chart below. Trump and Cruz would both, according to the nonpartisan Tax Policy Center, cut taxes for the top 1 percent by twice as much as Rubio would. And though they all would give the top 0.1 percent a $1 million-plus tax cut, it’s the putative outsiders who would give the plutocrats the most. Populism ain’t what it used to be.


Number of the Day

51 – Percentage of Louisianans willing to pay higher taxes in exchange for greater spending on K-12 education (Source: LSU Survey via The Advocate)