For more than a week, state legislators have been battling fiercely in public and negotiating furiously behind the scenes to try to overcome their partisan differences over taxes to approve a plan to address the state’s $1 billion shortfall.
Republicans and Democrats in the Louisiana House failed to find common ground once again on Friday and will make one last effort on Sunday night. Lawmakers narrowly defeated the only tax bill that came to a vote on Friday.
What’s been lost in the tumult is the question of who would pay more under the different plans — and especially how much.
Amid the polarizing speeches in Baton Rouge, no one has noted that none of the measures would cost any taxpayers more than 1 percent of their income per year.
Instead, the most vocal legislators have denounced the other side while trying to score political points by using generalities to argue that their plan is fairest.
Hanging in the balance at the State Capitol: whether lawmakers will raise enough money to stave off deep cuts in programs that serve students on TOPS, kids with disabilities, hospitals that serve the poor and prisons that have the highest number of inmates in the country on a per-capita basis.
Lawmakers have to fill the budget gap by Wednesday, when the special session ends, or return in June for another special session, this time with less than four weeks before the new budget year begins on July 1. By law, legislators cannot raise taxes during this year’s regular session, which commences on March 12.
Democrats have pushed to close the shortfall by changing the income-tax system, saying that’s fairer because it would make higher-income taxpayers dig deeper. Republicans have steadfastly opposed income tax changes as a drag on those who invest and create jobs.
Republicans have said they are reluctantly willing to support a partial renewal of a sales tax increase, but only because they believe it’s the best option to raise more revenue. Republicans believe raising the sales tax is the fairest way to boost revenue because all taxpayers pay at the same rate when they make purchases.
Democrats complain, however, that sales tax increases take a bigger bite out of the poor, and they note that Louisiana currently has the highest combined local and state sales tax rate of 10 percent. Some Democrats have indicated that they would go along with the sales-tax plan, but on the condition that at least one of the income tax measures wins passage.
This year’s developments are not a surprise to those who remember that Republicans in 2017 shot down the recommendations of a blue-ribbon tax panel, which would have shifted the tax burden somewhat from the poor toward upper-income taxpayers as a way to solve the state’s budget problems.
Unnoted in this year’s debate is that Louisiana has what economists call a “regressive” tax system, meaning that the poor pay a greater percentage of their income in state and local taxes than the wealthy.
In 2015, families that earned $32,000 or less — who represent 40 percent of Louisiana households — paid an average of 10 percent of their income in taxes. By comparison, families that earned at least $470,000 per year — who represent the top 1 percent of households in Louisiana — paid an average of just 4.2 percent of their income in taxes, according to the Institute on Taxation and Economic Policy, a left-of-center interest group in Washington, D.C.
“Our tax system is unfair now,” said Jan Moller, director of the Louisiana Budget Project, a Baton Rouge-based group that is associated with the institute.
Legislators have been meeting since Feb. 19 to address what Gov. John Bel Edwards has said is a $1 billion shortfall to balance the budget that takes effect on July 1.
Of that $1 billion, the tax cut passed by Congress and President Donald Trump could, ironically, reduce that gap by an estimated $300 million in Louisiana. That’s because of a quirk in state law that causes a reduction in federal income taxes to generate more tax dollars for the state treasury. So that could put the shortfall at about $700 million.
State Rep. Stephen Dwight, R-Lake Charles, is sponsoring House Bill 23, which would renew one-fourth of the 1-cent sales tax increase that legislators approved in 2016 but that will expire on June 30. The partial renewal, which would last only until mid-2021, would raise $220 million.
Dwight’s bill would raise another $80 million by not permitting a number of sales tax breaks to go into effect on June 30. So in total, HB23 would raise $300 million next year.
House members defeated Dwight’s bill on Wednesday night, 38-67, with a narrow majority of Republicans voting for it and nearly all Democrats against it to protest the Republicans’ unwillingness to move forward with income tax measures. Because the bill would increase taxes, if it is voted on again on Sunday night, HB23 would need at least 70 votes — a two-thirds majority — to pass and advance to the state Senate for consideration. If nothing else changes, some 35 members of the 41-member Democratic caucus would have to vote yes for it to pass.
While Louisiana legislators milled around the State Capitol last week doing nothing more than accusing members of the other party of sidetrack…
Unless Dwight’s measure is revived, the entirety of a 1-cent sales tax increase stands to expire on June 30, producing a savings to taxpayers of $880 million next year — and a corresponding revenue loss to the treasury that would cause devastating cuts, according to everyone but the most ardent anti-tax conservatives.
So who would pay more with a .25 percent increase in the state sales, as envisioned in Dwight’s bill, and how much?
It would cost a family earning $25,000 about $40 in higher sales taxes per year, according to a calculation by Jim Richardson, a professor at LSU who is the state’s top public-affairs economist and who co-chaired the blue-ribbon panel on taxes.
It would cost a family earning $100,000 to $125,000 per year about $65 more in sales tax per year, Richardson said. About 5 percent of families fall in this group.
One alternative pushed by Democrats is House Bill 8, by state Rep. Walt Leger III, D-New Orleans. It would no longer allow taxpayers to deduct, on their state tax returns, the state and local tax payments they made during the previous tax year. It would raise $79 million per year.
Leger’s proposal would almost exclusively impact taxpayers who itemize on their federal tax returns and earn at least $200,000 per year, or about 4 percent of households, Richardson said. Their tax bill would be $400 to $600 higher per year. So Leger’s proposal would affect the wealthy.
On Friday, the House narrowly defeated Leger’s bill, 50-51, with an additional three votes, or 53, needed for passage. (This measure needs only 53 votes because it does not levy a new tax or increase tax rates.)
Leger will likely make another effort to pass it Sunday night since five Democratic state representatives — Jimmy Harris, of New Orleans; Gary Carter, of New Orleans; Denise Marcelle, of Baton Rouge; Cedric Glover, of Shreveport; and Mike Danahay, of Sulphur — voted against it and might be persuaded to vote yes.
Members of the Legislative Black Caucus — who are Democrats — have insisted on passage of another measure that would make Louisiana taxpayers who have a taxable income of at least $50,000 per year pay more in income taxes. Taxable income is the income, after deductions, that taxpayers note on their tax returns; $50,000 in taxable income is equivalent to $70,000 to $75,000 in earned income, Richardson said.
In the Capitol, this measure is known as “compressing the brackets,” because under it taxpayers with a lower level of income would pay a higher tax rate.
In 2008, the Legislature and Gov. Bobby Jindal raised the amount of taxable income a family must earn from $37,500 to $100,000 before the top 6 percent income tax rate would kick in. This amounted to a windfall for the wealthier, although it also was a break for the middle class.
If legislators mandated a return to the 6 percent rate at $50,000 of taxable income, a household earning $50,000 per year would pay no more, Richardson calculated. A family with $75,000 of taxable income would pay about $500 more per year, and a family with $100,000 of taxable income would pay $1,000 more per year.
The 35 percent of families that earn more than $50,000 per year would pay more under compressing the brackets. Republicans have said they are dead-set against this measure, which would raise about $350 million per year.
Who would pay more
Different plans yet to be approved by the state Legislature seek to address a looming $1 billion budget shortfall. None of the measures would cost any taxpayers more than 1 percent of their income per year.
0.25 percent increase in the state sales tax
Families earning less than $25,000 per year would pay: $40
Families earning $100,000 to $125,000 per year would pay: $60
Ending the state and local tax deduction
Most families earning less than $200,000 per year would pay: $0
Families earning more than $200,000 per year would pay: $400 to $600
Compressing tax brackets
Families earning less than $50,000 per year in taxable income would pay: $0
Families earning $75,000 per year in taxable income would pay: $500
Families earning $100,000 per year in taxable income would pay: $1,000
Source: LSU professor Jim Richardson