It was Vic Stelly’s wife of 60 years, Terry, dying only 14 hours after he, both of COVID-19 complications, that grabbed the attention of people around the nation.
But the memory of the gentleman legislator from Lake Charles should be about what might have been. How a decade of well-funded universities, teachers and police paid at the same levels as other states, money enough for well-paved roads and economic growth, all were sidelined when wobbly politicians dismantled Stelly’s tax system.
It was Stelly, a Republican, who authored a balanced system that required the well-heeled to pay slightly more in income taxes, less than $100 annually, while limiting sales taxes on vital retail items like food and groceries to lessen the burden on the state’s low-income residents. The Stelly Plan was approved by the Legislature and backed by then-Gov. Mike Foster, a Republican. When most of the state’s voters agreed in 2002, Louisiana was able to legitimately raise enough money to pay for the services politicians had promised constituents.
But almost from the get-go many wealthier voters resented paying slightly more than their more numerous lower-income neighbors.
Pressed by a rising conservative tide, Democratic Gov. Kathleen Blanco in 2007 allowed the Legislature to reverse a major provision of the Stelly Plan by giving taxpayers who itemized deductions on federal returns, about 25% of filers, the right to deduct the amount on state returns. (The federal tax revamp of 2017 virtually eliminated most itemized deductions, creating a windfall for Louisiana government.)
A year later, Gov. Bobby Jindal, a Republican with national aspirations, at first balked at the Legislature’s idea of pretty much spiking Stelly altogether. Then seeing that parade already underway, Jindal changed his mind and ran to the front promising that resetting the brackets, thereby lowering personal income taxes, together with tax breaks for businesses, would incentivize the economy to great heights. In reality, that vision floated as well as a stone thrown into the sea.
Louisiana’s finances floundered for a decade, probably injured Jindal’s bid for the presidency, haunting budget architects to this day.
“If we had not cut the taxes, we would have had a much easier road, and not had to make the same budget cuts as far as higher education,” said LSU economist Jim Richardson, who served for years on the Revenue Estimating Conference, which officially certifies how much revenues state government has available to spend.
“We have never caught back up,” Richardson said.
“It was self-inflicted,” said Greg Albrecht, the Legislature’s economist who provided the numbers and forecasts Stelly used in hammering out his plan. “Besides all the Jindal tax credit craze we went on, we permanently reduced the personal income tax base, which always had been a very large share of our general fund revenues, 25%-30%.”
The economists say the legislators weren’t totally at fault.
They rolled back the Stelly Plan in 2007-2008 after hurricane recovery monies from the federal government and private insurance filled state coffers with sales and income tax proceeds. The general fund — the part of the state budget that Louisiana taxpayers cover — jumped from $6.5 billion to $9.3 billion between fiscal years 2005 and 2007. The total budget rose from $16.5 billion to $26.1 billion.
Lawmakers went home trumpeting how they returned about $1 billion dollars to taxpayer pockets.
And then the national Great Recession hit along with a collapse in oil prices.
To balance the budget, Jindal cut spending on health care for lower income people as well as state support for colleges and universities — the main two expenditures available legally. Jindal emptied trust funds and engaged in what critics call “smoke and mirrors accounting.”
If still in place, the Stelly Plan would have generated 30% to 40% more revenues for the state budget. It wouldn’t have eliminated spending cuts to balance the budget in light of the recession and plummeting oil prices, but Stelly would have kept those cuts from being so deep and would have helped the state recover faster, Albrecht and Richardson say.
These memories should be considered when the Louisiana Legislature reconvenes April 12.
Top of the agenda for many lawmakers is an effort to eliminate income taxes altogether. They want to be just like much larger Texas and Florida, whose more diverse economies took hits, but rebounded far faster than Louisiana’s after the recession and likely will do so again once the pandemic ends.
While Louisiana obviously needs a tax overhaul similar to the one the Stelly Plan provided, taxpayers also need to do the math.
Louisiana income tax raises about $3.8 billion — roughly a third of the state general fund that pays for higher education and other services. What are the plans to replace that money?