WASHINGTON — Most Louisiana households would get a federal tax break under either of the two GOP-backed tax bills currently winding their way through Congress, but the cuts are projected to diminish over the coming decade and thousands of families would pay more, according to several analyses of the bills.
Over the years, the richest people in Louisiana would see the largest benefit under the changes, reports on both the House and Senate tax cut bills by the nonpartisan Institute for Taxation and Economic Policy found. Those projections mirrored findings by several other groups who looked at the potential impact of the bills nationally.
The ambitious Republican effort to overhaul the tax code will be the top priority as members of Congress stream back into Washington following a week long Thanksgiving break. The House of Representatives passed its tax bill with a wide majority just before leaving town, as did a Senate committee which had been debating its own bill.
The proposed tax changes have been touted by GOP leaders, including House Majority Whip Steve Scalise of Jefferson Parish, as a potential boon to the nation’s economy. Backers highlighted analyses of the House and Senate bills by the Tax Foundation that found both proposals would stoke economic growth across the country.
In Louisiana, according to the Tax Foundation, both bills would lead to more than 12,000 new jobs in the state and boost earnings for middle-income households by as much as $1,857. The group’s reports projected slightly higher job and wage growth in other parts of the country.
"This bill is a win for hard-working families,” Scalise said on the House floor before their vote. “This puts money back in the pockets of people that have been struggling so long and it allows the economic growth that’s going to see wages finally increase.”
Other groups dispute the plan's projected impact on the economy and wage growth. The Tax Policy Center's analysis estimates only small economic gains under either bill while a survey of economists by the University of Chicago Booth School of Business found only one who believed the bills would have a significant impact on the country's GDP.
All five Louisiana Republican members of Congress cast votes in favor of the House bill. The state’s sole Democratic member, Rep. Cedric Richmond of New Orleans, voted against it.
Louisiana’s two senators, Republicans Bill Cassidy and John Kennedy, have also been keen backers of the tax overhaul. Cassidy is on the committee that drafted the Senate’s version of the bill.
Several reports on the bill, produced over recent weeks by a number of Washington-based think tanks, suggest that Louisiana will see less of an impact than many other states on what have become some of the most criticized parts of the bill, such as eliminating the write-offs for state and local taxes. Those are claimed less often by Louisianans than by residents of other states.
But, still, individual taxpayers would notice the changes.
A state-by-state analysis by the Institute for Taxation and Economic Policy, a Washington-based think tank that studies tax policy, projected that 79 percent of Louisiana taxpayers would see a cut in 2019 under the Senate GOP’s latest draft bill, with the average household’s federal taxes dropping by $1,410. The group’s analysis found similar near-term impacts from the House bill, with average Louisiana households paying $1,390 less in 2018 but slightly fewer — 73 percent — getting a break.
“This plan will cut taxes for working families in Louisiana, grow our economy and help keep American jobs from moving overseas,” Cassidy said of the Senate draft.
But for 192,600 households in the state, according to the group, the Senate bill would result in a 2019 tax hike of an average of $780. Fewer taxpayers in Louisiana would get hit with an immediate tax hike under the House plan — roughly 130,000 — but the average hit would be larger at $1,110.
The group projected that households paying more in taxes would be sprinkled across all income groups under both bills. About 12 percent of the poorest taxpayers — those making less than $19,370 a year — in Louisiana would see their taxes rise. Taxes would also rise for about 15 percent of households earning between $56,260 and $92,600.
Democrats and other opponents of the bill have seized on those projected tax hikes to portray the GOP proposals as giveaways for corporations and the rich paid for on the backs of working Americans.
Richmond, Louisiana’s lone Democrat in Washington and the chairman of the Congressional Black Caucus, called the House bill “morally bankrupt” following its passage.
“In order to pay for tax cuts for corporations and one percenters like President Trump, the bill eliminates middle-class tax breaks that help average Americans make ends meet,” Richmond said.
Kennedy, in an interview with The Advocate in early November, said simplifying the tax code by eliminating numerous deductions would almost certainly mean that some families might see their taxes rise.
“The tax code is so complicated — it's 10 million words, you can stand on the thing and paint the ceiling — so somebody worth their salt is going to be able to find somebody who's going to pay more,” Kennedy said.
But Kennedy contended the tax cuts would stoke economic growth in ways that would leave all Americans better off.
“A rising tide does in fact lift all boats,” Kennedy said.
Those with the highest incomes would see the biggest benefits under the bill, according to ITEP, with 24 percent of the total 2019 tax savings for Louisianans in the Senate plan and 32 percent of the savings in the House bill going to the top 1 percent of earners in the state, who make $449,200 or more. Those high-earning households on average would pay $28,960 less to the federal treasury under the Senate plan and $44,560 less under the House bill.
In comparison, a family earning between $55,910 and $91,970 would see an average tax cut of $970 in 2019 and an average tax hike of $100 in 2027, after some of the Senate bill’s individual tax breaks expire. Households in that income bracket would do slightly better under the House bill, seeing their taxes drop an average of $1,100 next year and still see a $550 tax break in 2027, according to ITEP’s projections.
Both ITEP and the Tax Foundation found the tax cuts under both bills would diminish over time for most households. The Senate bill includes permanent changes to the business tax rates but includes only temporary tax cuts for individuals. That decision was made to avoid ballooning the federal deficit over the long run but has raised questions over whether those cuts would be renewed in the future.
But every major analysis of the bill — even those using so-called “dynamic” models that take into account economic growth under the cuts — project that both GOP tax bills would significantly reduce federal revenue. That’s alarmed several fiscally conservative Republicans in the U.S. Senate, a potentially tricky political problem because the party holds only a narrow majority, and has also left liberals fearful that the plan would lead to major future spending cuts to programs like Medicare and Medicaid.
The Tax Foundation, whose analyses of the bills have been highlighted by Republicans in Congress, projected the House plan would increase the deficit by $1.08 trillion over the next decade even after taking into account additional tax revenue from a growing economy. The group took a rosier view of the Senate bill but still projected it to cost the federal government $516 billion by 2027.
The nonpartisan Congressional Budget Office noted the tax bills would trigger automatic across-the-board spending cuts under the 2010 Pay-As-You-Go Act (or PAYGO), a federal law designed to limit future increases in the federal debt. Unless Congress moves to waive the PAYGO rules, the House tax plan would trigger $136 billion in cuts to a wide range of areas, including $25 billion from Medicare, as well as from student loan programs and federal agricultural subsidies.
But even if Congress waives the PAYGO cuts, the drop in future tax revenue and growing federal deficit would create growing pressure in coming decades to slash entitlement programs like Medicaid or hike taxes on future generations, said Jan Moller, executive director of the Louisiana Budget Project, which advocates for low- and middle-income families in the state.
“Like the House Republican tax plan, the tax cuts the Senate has proposed for the wealthiest among us would cause federal deficits to increase significantly,” said Moller. “This would set the stage for massive cuts to federal programs and services that serve seniors, veterans, children and people with disabilities.”
Both tax bills would eliminate a range of deductions, close several tax loopholes and consolidate tax rates for individuals into fewer brackets. Each would slash corporate and business tax rates while shifting the United States to a so-called territorial tax system — which taxes business activities based on the location of sales or investment, not a company’s headquarters — to bring the country’s tax code more in line with the rest of the world.
In the individual tax code, the bills would double the standard deduction while trimming or eliminating a number of popular write-offs, such as on student loan debt. The House bill would lower the cap on home mortgage interest deductions to $500,000, while the Senate bill would limit it to $1 million. The bill also eliminates the personal exemptions that allow individuals to deduct for children and other dependents, partially offsetting it with a boost to the child tax credit.
One particularly contentious proposal is the elimination of the federal write-off for state and local taxes, a politically charged issue that turned a number of Republican members of Congress from high-tax states like California, New York and New Jersey against the House bill. Twelve of the 13 Republican House members to vote against the bill came from those three states.
The House-passed version still allow deductions for up to $10,000 in property taxes but eliminates write-offs for sales and incomes taxes while the latest Senate draft would eliminate it altogether.
But Louisiana — where incomes are below the national average and home values and taxes are relatively low — would largely be spared the pinch. Louisianans claim the deduction far less often, and write off less in taxes when they do, than residents of most other states, according to a Tax Policy Center analysis of Internal Revenue Service data from 2003 to 2015.
Both bills would also roll back the estate tax, a federal tax levied at death.
The tax currently exacts up to 40 percent but applies only to estates valued at $5.49 million for an individual or $11 million for a couple. The Senate proposal would double the value of an estate before triggering the tax, while the House bill would eventually eliminate it altogether.
The Center on Budget and Policy Priorities, using IRS data, estimated that a total of 60 Louisiana estates were subject to the federal estate tax in 2014, or 0.14 percent of the 43,270 deaths in the state that year. The tax hit a slightly higher (though still very small) percentage of estates elsewhere in the country that year, with 0.20 percent of all estates filing returns, according to CBPP.