House Bill 514, which started out as a mechanism to tax medical marijuana, was amended in the Senate to shift $400 million out of the state general fund, where the money can be used to support education and health care among other priorities, and into the Transportation Trust Fund. Senators also amended the bill to make a temporary 0.45% increase in the state’s sales tax permanent, while lowering taxes for corporations. In a new blog post, LBP’s Jackson Voss explains why using regressive tax policy to fund road repairs, while taking money away from other underfunded priorities is a bad idea.
Louisiana already has one of the highest overall (state and local) sales tax rates in the country. Our high sales tax is the main reason our tax structure is deeply regressive – meaning low-income households (and Black families) pay a higher effective tax rate than wealthy families. This bill would permanently enshrine that imbalance in state law, while creating a nearly $400 million revenue shortfall that would likely require cuts to state services. By also phasing out the business utility sales tax, the bill provides a tax cut for some of Louisiana’s largest corporations while requiring low-income families to pay indefinitely higher taxes for fewer state services.
A dangerous tax trigger advances
A package of tax bills moving through the Legislature aims to eliminate a tax deduction that favors the wealthy in order to lower income tax rates, a “reform” that does nothing to address Louisiana’s endemic poverty or underfinanced education systems. But while proponents bill the tax swap package as “revenue neutral,” a provision in House Bill 278 by Rep. Stuart Bishop would limit the state’s ability to invest future revenue gains in programs and policies that benefit ordinary people. The Center Square’s David Jacobs reports on the debate over a tax cut trigger:
Jan Moller with the Louisiana Budget Project argued such triggers are bad policy because in a good revenue year, tax cuts immediately go to the front of the line of priorities, rather than teacher pay, early childhood education or anything else a lawmaker might have promised voters to address, effectively “tying the hands of future legislators.” “We’re really planning for future investments now,” said Sen. Karen Carter Peterson, a New Orleans Democrat, explaining her objection to the trigger. She also urged Allain to commit to supporting an increase in the state’s earned income tax credit to benefit the working poor. Allain said he would consider it but stopped short of making a commitment.
Louisiana’s kids aren’t a priority at the Legislature
Even with a major windfall from federal recovery funds, Louisiana lawmakers found no room in the budget for early childhood education this session. That’s despite $86 million in unfunded need and an existing early childhood education system that fails to prepare nearly half of all kids entering kindergarten for early elementary learning. As Pres Kabacoff writes in The Advocate, the Legislature’s recent attention to the learning needs of our state’s young children have amounted to empty promises.
This is discouraging to advocates, but what makes it deeply short-sighted is the fact that the state board of education is poised to make its first awards from the Louisiana Early Childhood Education Fund this summer. The fund was created years ago and is intended to offer local entities a dollar-for-dollar match on investments in early care and education. New Orleans has committed $1.5 million to expand early care for our youngest learners; Jefferson Parish and the city of Shreveport have done the same. Other local entities are in the process of exploring how they can help more families access quality programs. How much is currently in the fund? As of April 15, $320,000.
A recipe for a stalled recovery
A growing list of conservative state governors have refused to accept federal unemployment benefits, leaving hundreds of thousands of laid off workers with few resources as the economic fallout from Covid continues. While business lobbyists insist that cutting off aid will push people back to the workforce, the evidence doesn’t support those claims. Daniel Alpert, writing in the New York Times, offers another reason to keep federal unemployment benefits in place while the recovery continues: increased employment in jobs that simply don’t offer workers enough wages or hours to live on – coupled with a loss of the benefits that helped workers to make ends meet – can slow down the recovery.
Shutting off that pipeline means the economy at large could experience one of two adverse outcomes: Either there won’t be enough jobs for the people eventually looking for work because so many businesses closed during the pandemic, or the jobs left over will be, frankly, lousier jobs. This latter possibility would leave a large share of Americans underemployed, which would cause a wide reduction in household income among the country’s less wealthy half. Neither the financial markets, nor most policymakers, seem to expect a contraction in household incomes this autumn. But the probability is likelier than they think. Just imagine seeing millions of new jobs added over the next few months and unemployment falling, all accompanied by a decline in household spending by workers who are then only able to access the low-wage, low-hours jobs they had before the pandemic. As with much else during the pandemic recession, the pain and the recovery are uneven.
Number of the Day
$50 billion – Annual cost of the federal “pass-through” deduction, which primarily benefits the richest people in America. 61% of pass-through deductions go to the wealthiest 1% of taxpayers. (Source: Center on Budget and Policy Priorities)