Louisiana’s poor and middle class spend more of their money on state and local taxes than wealthier families, according to a national study that breaks down the tax burden in each of the 50 states by income brackets.
Moller said the reasons for the disparity are all too familiar: Louisiana has the nation’s third-highest state and local sales tax rate, and wealthier Louisiana households benefit from lower property taxes and credits, like the one for private school tuition, that are unavailable to lower-income people.
Louisiana families with incomes below $32,000 per year — about 40 percent of the households — pay an average 10 percent rate in state and local taxes, according to the Institute on Taxation and Economic Policy, a Washington, D.C.-based group that researches the impact of tax policies. The state’s top 1 percent — families with incomes above $471,000 annually — pay 4.2 percent.
The key problem for state government is that the tax system doesn’t produce enough revenue to adequately fund schools, hospitals and infrastructure, Moller said.
The Institute faulted Louisiana’s tax system’s comparatively high reliance on sales and excise taxes, tax deductions for federal income taxes paid and local sales taxes that include groceries for many taxpayers. Louisiana ranked 19th on the Tax Inequality Index, meaning that the state and local tax burden is less equal between the income brackets when compared with other states.
The Institute found the worst state to be Washington, where the poorest residents pay 16.8 percent of their income in taxes, which is about seven times more than the wealthiest 1 percent, who pay 2.4 percent. Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas and Indiana round out the top 10 worst in terms of disparity.
Louisiana Department of Revenue Secretary Tim Barfield disagreed with the findings.
“We have had a long-standing philosophical difference with this group,” Barfield said in a prepared statement. “We believe in minimizing the reliance on government subsidies and programs, while lowering taxes and supporting reforms that are conducive to sustainable job creation, the improvement of education and training programs, and overall economic development that will combat poverty and provide a combination of choices and opportunities for the poor and low-income.”
What happens is that the taxes significantly cut into the money available for essentials, like food, housing and electricity, said Democratic state Rep. Patricia Smith, whose inner-city Baton Rouge district is home to a lot of low-income workers.
She doesn’t have any academic studies showing it, but from talking to her constituents, Smith says she hears about many people serving food in schools, cleaning buildings, clerking at retail stores and providing health care, along with myriad other low-paying jobs, juggling payments and making harsh choices to deal with immediate needs. That means skipping trips to the doctor, not buying milk and postponing payments.
“They’re doing without things that many of us think are necessary, like prescriptions and health care,” Smith said.
She blames the state’s tax system. She says Louisiana’s tax system is riddled with credits and deductions that have been skewed toward businesses and bosses at the expense of workers.
Opinions vary widely on what makes taxes fair, Smith said. She reminded that state voters supported a plan that eliminated some of the sales tax burden on lower-income people and balanced those losses by increasing income taxes on wealthier Louisiana residents. But relentless criticism of what was called the “Stelly Plan” led to rollbacks of the income tax portion in 2007 and 2008.
Moller said he backs reinstating the Stelly Plan.
Also, one of the state’s highlights is an earned income tax credit, which benefits working families with children, he said. But Louisiana’s 3.5 percent credit is the lowest of the roughly two dozen states that have the credit.
“We’re going to be working to enhance earned income tax credit” during the legislative session that begins April 13, Moller said. “We’d like to see it at least doubled.”
Moller also advocated eliminating the state deduction for federal income taxes. Louisiana gives away about $600 million for the break that primarily helps higher incomes.