What’s driving the budget surplus?

What’s driving the budget surplus?

Some politicians are trying – falsely –  to tie Louisiana’s $500 million budget surplus to the 2018 tax compromise that stabilized the state’s finances after years of shortfalls. Not so, says the Legislature’s chief economist. Greg Albrecht said that changes to federal tax law is what’s driving higher-than-expected income tax collections from individuals and corporations. AP’s Melinda Deslatte has the story:

“It’s really all about personal income tax and corporate tax, which I am attributing almost entirely to the federal tax law changes that went into effect,” Albrecht told Louisiana’s income forecasting panel, the Revenue Estimating Conference. Louisiana has tied some of its tax deductions to federal income taxes. A drop in federal tax liabilities under the congressional tax code rewrite means Louisiana taxpayers and businesses owe more to the state.

But as LBP’s Jan Moller explains, the quirk of state tax law partly responsible for today’s surplus also holds the state back.

As tax breaks go, it’s hard to find one that costs more than the federal deduction – nor one whose benefits flow more heavily to the wealthiest taxpayers. An analysis done by the Institute on Taxation and Economic Policy for LBP found that the deduction cost Louisiana $968 million in uncollected tax revenue in 2015. More than one-third of that (36 percent) helps the top 1 percent of tax filers, who have an average taxable income of almost $1.4 million. Only about 1 percent of the benefits flow to the bottom 40 percent of tax filers – those earning less than $37,000 per year in taxable income.

 

Steady money for higher ed
Over the years, Louisiana’s voters have passed constitutional protections for a host of budget items, leaving higher education and healthcare particularly vulnerable to cuts when state revenues are low. So when the Legislature and Gov. Bobby Jindal chose to give away hundreds of millions of dollars, mostly to the state’s wealthiest taxpayers, the state’s public colleges and universities faced dramatic cuts. But, as The Advocate’s Will Sentell reports, now that the state budget has returned to some much-needed stability, higher ed officials are looking forward to a year without mid-year cuts.

“It went from being cut every year to not being cut in our first two years and being plussed up in our third year,” (Commissioner of Administration Jay) Dardenne said. “So it is clearly better than it has been for the past decade,” he said. “It is not where we want it to be, but we are making progress.”

 

Our health insurance system is broken
Health care spending in America is enormously expensive for both employers and employees. Employer-sponsored family coverage cost more than $20,000 per employee in 2019, according to a new survey by the Kaiser Family Foundation. In comparison, half of all families in Louisiana have a total household income of less than $48,000 a year. As the New York Times’s Reed Abelson reports, the high cost of insurance makes it harder for small businesses to compete for workers and exorbitant premiums drive down wages enough to push some workers out of the labor force.

(Jessie) McCormick, 27, who has a heart condition, had an opportunity to move from part time to full time in her job at a small nonprofit in Washington. Working full time would qualify her for the firm’s health plan. But she calculated that her out-of-pocket costs would be at least $1,200 per month, about double the money she had left after paying her rent and utilities. Instead, she quit her job last summer so her income would be low enough to enroll in Medicaid, which will cover all her medical expenses. “I’m trying to do some side jobs,” she said.

 

Medicaid block grants are bad policy
At the Trump administration’s urging, Tennessee has applied for a waiver to operate the state’s Medicaid program as a block grant — a radical and worrying departure from the program’s current structure. Under normal Medicaid rules, anyone who is eligible for health coverage through the program is entitled to that coverage. Hannah Katch, Judith Solomon and Aviva Aron-Dine at the Center on Budget and Policy Priorities explain how Tennessee’s move, which likely violates federal law, should serve as a cautionary tale. 

The proposal would give the state strong financial incentives to cut benefits and reduce enrollment, as well as new authority to do so. For example, Tennessee could restrict core services such as hospital and emergency care or cut services like physical therapy, hospice, and transplant coverage without normal federal oversight or public comment. The waiver’s supposed protections for beneficiaries wouldn’t prevent these and other cuts, because other provisions of the waiver effectively undo them.

 

Number of the Day
18.6% – Louisianan’s poverty rate in 2018. Louisiana’s poverty rate fell by 1.1 percentage points from 2017. (Source: U.S. Census American Community Survey)