This year, the Legislature has an opportunity to help Louisiana workers and their families by expanding the state’s Earned Income Tax Credit and creating a new tax credit for children, the Strong Families Tax Credit. Join us on Friday, April, 23 at 10 a.m. to hear more from policy advocates and legislators about these tax credits, which help lift people out of poverty and put children on the path to a brighter future. Click here to register.
Tax swap for rich households advances
The state House Ways and Means Committee approved a tax swap on Monday – House Bills 274 and 278 – that would eliminate a popular tax break for the rich in exchange for income tax rate reductions that primarily benefit the rich. The federal income tax deduction allows individuals who itemize their taxes, which are typically higher-income households, to deduct the amount of federal income taxes they pay on their state tax returns. Eighty-six percent of the federal income tax deductions benefits go to households in the top 20% of income earners. The committee also advanced bills – House Bills 171 and 207 that would establish a 4% flat income tax. The Advocate’s Tyler Bridges reports:
Jan Moller, the director of the left-leaning Louisiana Budget Project, praised the bill for simplifying the tax code. But he said a better bill would be one that raised more revenue and addressed a tax system that makes low income people pay a higher percentage of their income in taxes than it does the wealthy. People who earn less than $17,100 per year pay 11.9% of their income in income taxes, property taxes and sales and excise taxes combined while people who earn over $475,000 pay only 6.2%, according to Moller’s group.
Click here for a LBP’s federal income tax deduction fact sheet, which includes ideas for better things to do with new revenue than a rate reduction tilted toward the rich.
Tax on millionaires shelved
The Ways & Means Committee rejected a bill by Rep. Mandie Landry that asks wealthy Louisianans to pay their fair share of income taxes. House Bill 441 aimed to create two new tax brackets – a 7% tax on income above $500,000 and 8% on all income above $1 million. Despite dozens of notes in support, the committee refused to let the plan be debated in the full House. The Illuminator’s Wesley Muller explains:
Landry argued that rather than making decisions based on tax rates, people tend to choose where to live based more on factors such as employment, access to schools, healthcare and quality of life. “It seems like ‘competitive’ is in the eye of the beholder,” she said, adding that many of the measures lawmakers have promised would make things better have little data to support them. “I would argue that a state that has a better education system, has healthier people, has higher wages is more competitive,” she said.
Funding asphalt over academia
Legislation that would shift state dollars from higher education and health care and pay for asphalt advanced on Monday. Senate Bill 1 by Sen. Barrow Peacock would divert revenue generated from the state’s temporary $0.45 cents sales tax and earmark it for the Transportation Trust Fund. The temporary sales tax was passed in 2018 as a compromise to avoid a massive fiscal cliff from revenue shortfalls and devastating cuts to higher education and health care. But as Gannett’s Greg Hilburn explains, now lawmakers, including the author of the temporary sales tax, are using short-term thinking that could blow a hole in the state budget.
“Our job in finance isn’t to create holes,” said Sen. Mark Abraham, R-Lake Charles. “It’s going to create holes in the budget. “I’d rather wait a few years to see where we are on the budget. I can’t justify digging a hole in 2022.”
The long-existing quandary of TOPS
As most people in Louisiana know, the TOPS college scholarship program is a political sacred cow. But the popular program came under scrutiny last week at the state Capitol where some lawmakers pointed out that the program has become an expensive entitlement program that mainly serves middle- and upper-income Louisianans. As the Advocate explains in an editorial, changes to TOPS are possible, but political intransigence remains the biggest obstacle to reform.
Like the homestead exemption, which is bad for state and local tax policy, TOPS may be flawed but it is viewed as a tax break that families are obviously reluctant to see changed. … Quandaries like this are very hard to solve politically. And if TOPS is not something-for-nothing, it’s also hardly a real scholarship program because it is so easy to get. Excellence is a hard sell when $321 million now goes out to some 60,000 students.
Number of the Day
$864 million – Amount of revenue that the federal income tax deduction cost Louisiana in 2020. (Source: LBP)