Louisiana’s personal income tax brings in $4.3 billion a year in revenue. That’s more money than the annual state general fund appropriation for health care ($2.8 billion) and higher education ($1.25 billion) combined. State Rep. Richard Nelson is proposing to do away with this vital revenue source, and on Tuesday the House Ways and Means Committee will meet to discuss the issue. Eliminating the income tax is a terrible idea that would leave legislators with two basic choices: Either replace the revenue with other taxes (most likely sales taxes), or make deep cuts to state services. As the Institute on Taxation and Economic Policy’s Kamolika Das explains, Mississippi leaders were recently confronted with the harsh economic reality of eliminating their state income tax:
As the tax-cut battle unfolded, industry representatives regularly voiced concern about nixing income taxes. After dozens of meetings with business leaders and numerous surveys, the Mississippi Economic Council determined that state income taxes were not a “hindrance” to most businesses and that finding qualified, reliable employees was a much larger priority. An analysis by two state economists aligned with these findings; they concluded that the large revenue shortfall would lead to fewer state government jobs, a net decrease in population, and an overall loss in personal income.
Romey CTC plan falls short
With pressure mounting on federal lawmakers to expand the Child Tax Credit, Sen. Mitt Romney is pushing a possible solution. But the Family Security Act 2.0 has big downsides, as it would offset the cost of expanding the credit by cutting important tax benefits for low- and moderate-income families, particularly single-parent families. In Louisiana, 36% of children are in families that would see a tax increase, including 47% of kids in the poorest 20% of families. The Institute on Taxation and Economic Policy explains how Romney’s plan falls short in a new report.
“Many pundits have pointed to Sen. Romney’s CTC proposal as a good starting point for bipartisan negotiations on expanding this critical tax credit. But as these new findings make clear, if this is where lawmakers start, they’ll have a long road to walk to get to a policy that delivers meaningful change to American families,” said ITEP Executive Director Amy Hanauer. “There’s really no need for a new starting point: the 2021 CTC expansion is just what low- and moderate-income families need, and it’s right where Congress ought to be starting its conversations.”
School-based services can prevent ‘unwinding’ coverage losses
An estimated 15 million Americans – including many children – could potentially lose coverage when states begin to ‘unwind’ Covid-era policies against terminating Medicaid health insurance coverage. Last month the Centers for Medicare & Medicaid Services (CMS) emphasized school outreach as an effective way to ensure children do not lose coverage when the public health emergency associated with Covid-19 ends. The Center on Budget and Policy Priorities’ Allison Orris and Jennifer Wagner explain why schools are natural places to help enroll uninsured children:
(T)hey’re an easy place to identify children who are uninsured, they’re trusted places, they’re geographically accessible, they have experience communicating with their communities through established information-sharing methods, and they can collaborate with partners to help children and their families apply for coverage. In a 2017 survey, more than half of surveyed school superintendents reported that they had taken steps to increase Medicaid enrollment of children in their schools.
Free tax filing system
The Inflation Reduction Act makes America’s tax code more fair by requiring large, profitable corporations to pay more in taxes, and giving the IRS new resources to help ensure that the ultra-wealthy comply with our tax laws. But a provision in the law also included $15 million for the IRS to study a free, government-backed tax filing system. The Washington Post’s Jacob Bogage explains how the poorest tax filers are not being served by what is ostensibly a free tax-filing service.
Taxpayers using some firms could only file for free by navigating through the IRS’s website; Free File was inaccessible on the companies’ webpages. Free File never gained the popularity federal tax officials had hoped: Fewer than 3 percent of taxpayers use the program, according to the Government Accountability Office, Congress’s nonpartisan watchdog. Intuit left the program in 2016 and H&R Block in 2015. State regulators said that at least one company used deceptive practices to steer low-income earners toward paid products: Intuit settled with eight state attorneys general for $141 million in May after accusations that its ads for free tax prep were misleading and purposefully confused the IRS-supported Free File program with “freemium products” that begin with no charge but include fees to accomplish even modest tasks.
Number of the Day
$4.325 billion – Estimated amount of revenue Louisiana will generate in 2022-23 through the personal income tax (Source: Revenue Estimating Conference)