Tax reform jockeying begins

Tax reform jockeying begins

Last week, word began circulating that Gov. John Bel Edwards’ administration had shelved tax reform ideas that would have made Louisiana’s system more fair and sustainable, pushing instead for the highly regressive gross receipts tax that’s widely considered to be bad tax policy.

Last week, word began circulating that Gov. John Bel Edwards’ administration had shelved tax reform ideas that would have made Louisiana’s system more fair and sustainable, pushing instead for the highly regressive gross receipts tax that’s widely considered to be bad tax policy. The Advocate’s Tyler Bridges:

Forcing the Legislature’s hand is the 2016 decision by House Republicans to insist that the penny increase in the sales tax expire next year, a stratagem aimed at pushing officials to come up with a more permanent solution to the state’s fiscal problems. Edwards has been holding private meetings with legislative delegations from different parts of the state — Baton Rouge, New Orleans and the north shore so far, and north Louisiana on Wednesday — to brief them on his ideas. Robinson said the proposed corporate tax on sales would raise “at least the same amount” as the corporate income and franchise taxes.

Meanwhile, the Republican House delegation is focused on curbing state spending, and did not produce a plan to address the $1.2 billion budget cliff the state faces in 2018 during its recent retreat. Gannett’s Greg Hilburn:

Republicans hold the majority in House, so they can dictate much of can secures final passage. Harris said he’d never seen his group “so tight-knit” in its determination. But the delegation didn’t formulate a plan to address tax reform and the $1 billion in temporary taxes that will fall off of the books in 2018, though Harris had previously said the House GOP would do so.

LBP’s tax reform recommendations can be found at www.investlouisiana.org.

 

Revenue needed to fully fund TOPS

Gov. John Bel Edwards’ fiscal year 2018 executive budget proposes another year of cuts to TOPS scholarship awards, funding only about 70 percent of students’ tuition. In order to fully fund the program, revenue would have to come in above projections or the Legislature must find an immediate source of new revenue for the upcoming fiscal year. Over the long-term, fundamental tax reform is needed to put the state on a sustainable revenue path. If the Legislature does not take action to raise revenue, cuts to TOPS scholarships could become the new normal, leaving low-income students particularly at risk. Melinda Deslatte has the latest for the Associated Press.

In Gov. John Bel Edwards’ 2017-18 budget proposal, TOPS would only pay for about 70 percent of students’ tuition next year, just like this year. The Democratic governor proposes $209 million for the tuition awards, $82 million less than needed to pay full tuition for eligible students who meet the performance standards to receive the aid. … (Rep. Walt) Leger, D-New Orleans, said if lawmakers don’t come up with the dollars to pay the full price tag for the college tuition program, they need to consider adjustments. He said across-the-board reductions to every student’s tuition aid disproportionately hit low-income and first-time students.

 

Edwards, Republicans agree- in theory- on budget reserves

State Sen. Jim Fannin is a long-time proponent of reserving 2 percent of the state’s annual projected revenue as a hedge against mid-year budget shortfalls. In practical terms, that means the Legislature would appropriate about $200 million less for next year’s budget than the state has available. The idea now has support from Gov. John Bel Edwards and likely would garner support from fiscal conservatives in the Legislature. But as The Advocate’s Tyler Bridges explains, Fannin’s proposal might be more popular in theory than in practice as the state is $440 million short of what’s needed to maintain current service levels.

Jim Richardson, an LSU economist who has sat on the Revenue Estimating Conference since its inception, praised Fannin’s proposal but noted the political difficulties with it. “You can probably find everyone to say it’s a good idea on the left and the right,” Richardson said in an interview. “But in the first year, we’d have to incur some pain with taxes that are a little higher or else we spend a little less.” Fannin noted that legislators will face political pain even if they approve the “standstill budget” proposed by Edwards for next year. In that scenario, the state would spend no more next year than this year, meaning spending on salaries of government employees, K-12 schools and other government services would not keep pace with inflation. The TOPS program would not be fully funded for a second year in a row.

 

Proposed federal budget would worsen Louisiana’s problems

President Donald Trump’s budget proposes reducing non-defense discretionary spending by $15 billion in the current fiscal year, which is already nearing the midway point. That translates to a 15 percent, across-the-board cut to all non-defense programs except Veterans Affairs and Homeland Security, including many that serve low-income and working class Americans. Robert Greenstein, president of the Center on Budget and Policy Priorities, elaborates:

Many of these areas have already borne significant cuts over the past seven years, due to the tight caps that the 2011 Budget Control Act placed on non-defense discretionary program funding plus the sequestration cuts, which have further reduced those caps. The President’s proposal to reverse sequestration for defense programs, while slashing non-defense programs far below the already-austere sequestration level, turns on its head the bipartisan consensus in place since 2013 that the sequestration cuts are too deep in both defense and non-defense areas.

The Trump proposal would reduce federal grants to state and local governments, which would come at an especially bad time for states experiencing revenue shortfalls like Louisiana. CBPP’s Iris Lav has more.

This is a bad time to shift large new costs to states.  Despite the relatively healthy economy, two-thirds of states face a revenue shortfall either this year or next.  Mid-year 2017 shortfalls equal $16 billion and projected 2018 shortfalls total $30 billion. The President’s budget justifies several of its cuts by stating that states or localities could better provide the services but, without adequate resources, that’s highly unlikely.    

 

Number of the Day

4- Years sooner the Medicare Hospital Insurance trust fund will be depleted under the proposed American Health Care Act, to 2024 from 2028. (Source: Center on Budget and Policy Priorities)