Arguing that low income workers will need some measure of relief if the Louisiana Legislature, as expected, raises sales taxes, the state Senate overwhelmingly approved a tax break for low income workers with families.
Senate Bill 10 would increase by one and half percent the state’s earned income tax credit that is taken by Louisiana income tax filers with families who make less than $48,000 a year. The increase, if it becomes law, will cost about $21 million annually.
“This directly impacts 42 percent of our constituents who can barely make ends meet and we’re about to tax them again,” state Sen. JP Morrell, the New Orleans Democrat who sponsored the measure.
Legislators stayed in the State Capitol late Wednesday night debating how much to keep of a sales tax penny set to expire next month. The state’s budget is about $648 million short of what’s needed to pay for the services lawmakers have promised.
Morrell says filling that gap with increased sales taxes requires the working poor to use much more of their incomes paying taxes. He sees an increase in the earned income tax credit as modest balance to the higher sales taxes.
“It’ll cost $21 million that would help offset anywhere from $400 million to $600 million in sales taxes,” Morrell said. “How in the heck you can defend business tax exemptions that are tens, if not hundreds of millions of dollars, and not support a program which gives an extra $95, on the high end, to 42 percent of our citizens.”
Senators approved the measure on a vote of 30-5. SB10 now goes to the House, where similar legislation has not been popular in the past. The special session ends Monday.
The earned income tax credit is available for a taxpayer with one child making $39,000 and a maximum of $48,000 when the taxpayer has three or more children. Louisiana provides a refundable tax credit equivalent to 3.5 percent of the federal amount the taxpayer received. SB10 would increase the state credit to 5 percent.
The program was begun on the federal level by U.S. Sen. Russell Long in 1975. A decade later the earned income tax credit was expanded by President Ronald Reagan and began spreading to the state level in the 1990s.
Twenty-nine states and the District of Columbia offer a state version of the federal credit.
Louisiana was the first state in the South to pass an earned income credit, but the percentage is now among the lowest in the country.
“I find it ironic that I have to defend a program supported by Ronald Reagan to Republicans,” Morrell said. “This is a program that is meant to encourage people to work. It’s not welfare – you have to earn money.”
Forty percent of the tax filers in Morrell’s New Orleans district claim the earned income tax credit with the families receiving an average of $103 annually or making $1.9 million available to spend, according to compilations reported by the Louisiana Budget Project. If his bill becomes law, they would receive $147.
Unlike tax breaks given corporations, the money returned through the earned income tax credit would be spent locally, Morrell said.
Sen. Beth Mizell, R-Franklinton, questioned whether any study could determine how a family spends its money. About a third of Mizell’s tax-filing constituents claim the earned income tax credit and receive and average $104 per year. At 5 percent they would receive $149 per year.
“If you’re making $30,000 a year and have three kids, you’re not going to Destin,” Morrell said.
“They’re going to spend it down at the Piggly Wiggly,” said state Sen. Norby Chabert, a Republican whose Houma district has 10,700 tax filers – 23.4 percent of the total – claiming the earned income tax credit, according the Louisiana Budget Project.
Voting to increase state earned tax income credit (30): President Alario, Sens. Allain, Bishop, Boudreaux, Carter, Chabert, Claitor, Cortez, Erdey, Gatti, Johns, LaFleur, Lambert, Long, Luneau, Mills, Mizell, Morrell, Morrish, Perry, Peterson, Price, Riser, G. Smith, J. Smith, Tarver, Thompson, Walsworth, Ward and White.
Voting against SB10 (5): Sens. Appel, Fannin, Hewitt, Milkovich and Peacock.
Not Voting (4): Sens Barrow, Colomb, Donahue and Martiny.