While most Louisianans will win from looming federal income tax reform, perhaps the biggest winner will be Democratic Gov. John Bel Edwards.
The Republican-led Congress, with President Donald Trump, before the year ends almost certainly will enact a tax reform package that should bring holiday cheer to Louisiana federal taxpayers. Although some details need clarification, it will feature broad and significant rate reductions for corporations with smaller ones for individuals. However, households likely will see a doubling of the standard deduction, and individuals running unincorporated businesses should see a reduction in taxes, too.
Certainly, the shot in the arm the economy receives from freeing money for the private sector will help a state still struggling to recover from lower energy prices over the past few years. Worse, the policies of Trump's predecessor, Barack Obama, which produced the weakest non-recessionary economic growth and lowest workforce participation rates in many years, have continued to weigh on Louisiana and the entire nation, producing barely any growth in median family income over the past decade.
State elected officials will find an additional present under their trees. Because of rate reduction and raising the standard deduction, the state will reap more in tax revenues.
Since Louisiana allows a state income tax deduction, both for households and corporations, for federal taxes paid and excess federal itemized deductions, the reforms will result in fewer total dollars paid to the federal government or claimed as excess deductions, meaning fewer dollars forgone by the state. On top of this, higher paychecks and profits from the economic growth unleashed will pad state coffers.
Before passage, hopefully lawmakers will jettison one counterproductive part. A proposal to tax the full value of university graduate assistantships, which includes tuition and other fee waivers currently exempt, would increase costs dramatically for students who take these positions, placing too great of a burden on many.
By contrast, a measure that removes deductibility of money given to university athletic foundations corrects a long-standing perverse incentive built into the tax code. Louisiana State University pioneered this tactic by charging many who buy tickets to football or other sports an extra fee, a “seat license,” that the buyer could write off.
Recently, LSU System President F. King Alexander and Athletic Director Joe Alleva engaged in a hyperventilating contest over removal of this tax break, predicting the change would not only doom fundraising efforts but also pare athletic offerings. They additionally pointed out how the athletic department kicks back millions of dollars annually to academics.
Forgetting for the moment that probably almost none of the minority of spectators who itemize their taxes would stop attending events without deductibility, LSU could simply send seat license money to its academic foundation, thus maintaining deductibility, and then from that pot fund athletic scholarships and facilities. This also would cut out the middleman of athletics funding academics.
Not everybody can win whenever the tax code changes, with a few filers who take some big and/or unusual deductions perhaps paying more. But, on the whole, the proposed changes in general would allow Louisianans and businesses to earn more, keep more of what they earn, and ease pressure on state finances.
That should put voters in a good mood, and they’ll enjoy it even more if lawmakers and Edwards discover from the reform they can craft a balanced budget with little or no tax increases. Happy voters like that would become more likely to re-elect incumbents like Edwards, whose iffy chances at another term jump markedly if he can avoid renewing the sales tax hike due to expire in mid-2018 or raising any other taxes.
Jeff Sadow is an associate professor of political science at Louisiana State University-Shreveport, where he teaches Louisiana government. He is author of a blog about Louisiana politics, www.between-lines.com, where links to information in this column may be found. When the Louisiana Legislature is in session, he writes about legislation in it at www.laleglog.com. Follow him on Twitter, @jsadowadvocate or email email@example.com. His views do not necessarily express those of his employer.