Liberals make a reasonable case that Louisiana’s tax system is unfair to the poor. They are right to demand a correction, which is exactly what a group called the Louisiana Budget Project did last week.
Now, before all my supply-side friends have conniption fits, let me be clear: This is definitely not a column to advocate “soaking the rich.” But it is a call to stop soaking the poor — a practice that is a moral abomination.
Consider: Conservatives tend to oppose steeply “progressive taxation,” meaning tax rates — not raw amounts, but rates — that rise with income. And with good reason. Higher tax percentages on higher incomes punish hard work and success. Worse, they create disincentives for the sort of labor and investments that lift the entire economy, including jobs and wages for the “poor.” Sharply progressive rates thus actually harm the very people the liberals aim to help.
Yet if it is wrong in theory and counterproductive in practice to confiscate higher earnings at significantly higher rates, it is even more self-evidently wrong to tax the working poor at higher rates than we tax the wealthy. Yet, as reported by the LBP on Wednesday, that’s what Louisiana does. (We’ll assume, for now, that LBP’s numbers are accurate.) A Louisiana worker earning, say, $30,000 per year pays an average of 10 percent of those earnings ($3,000) in all state and local taxes combined. But somebody pulling in $475,000 a year pays only an average of 4.2 percent of that income in state and local taxes. (That would be less than $20,000, or less than seven times as many tax dollars despite earning nearly 16 times as much money.)
In Louisiana, the more you earn, the smaller percentage you pay. It’s Robin Hood in sharp reverse. Or, to put it in a sort of pigeon vernacular, it’s bass-ackwards. Lawmakers darn well ought to fix it.
The question is, how?
It’s a difficult question.
First, we must understand what causes the anomaly in the first place.
The biggest cause, as LPB notes, is that “Louisiana has the third-highest combined (state and local) sales tax rate in the country, and some of the lowest property taxes.”
Sales taxes tend to fall most heavily on the poor, because the working poor must spend a greater portion of their income on basic necessities, rather than having the luxury of saving or investing some or much of it. (Property taxes also tend to be more stable sources of state income than sales taxes, meaning they rise and fall less precipitously when the overall economy grows or contracts.)
Despite Louisiana’s historic aversion to high property taxes, there is no good reason why slightly higher property taxes should not be assessed in return for lower sales taxes. In fact, because both sales and property taxes, under most circumstances, are deductible from federal income taxes, such a trade-off would amount to nearly a “wash” for wealthier taxpayers anyway, in terms of the total amount of taxes they pay to all levels of government. The working poor, though, who own little or no property and who tend not to itemize their federal tax returns (and thus benefit less from the federally deductible sales taxes anyway), would gain a significant break from the state while losing almost nothing to the feds.
Other suggestions by LPB, alas, are less salutary. For example, the group proposes eliminating the state deduction for federal income taxes, calling it a “tax giveaway.” That’s absurd. People should not be taxed twice on the same income, which really amounts to taxing people again on money they no longer have. LPB makes much of the fact that only five other states allow such a deduction — but that’s actually a reason to keep it, not jettison it. The deduction serves as an incentive for wealthier people to settle in Louisiana in the first place, which means bringing their money here to spend and invest.
Still, even if not all of LPB’s liberal solutions make sense, the group is right to recognize that regressive taxation is a problem that does need solving. The current system of soaking the poor is shameful and unworthy of a humane society.
New Orleans native Quin Hillyer is a contributing editor for National Review. You can follow him on Twitter, @QuinHillyer. His email address is email@example.com, and he blogs at blogs. theadvocate.com/quin-essential.