Starting in 2018, Congress has decreed a tax cut for many American households. When you get your income tax cut in April 2019, be ready for a bit of payback in May. That's because Louisiana gives a big tax deduction for federal income taxes paid, and if income taxes are lower, then the state payment goes up.
It's a consequence of Louisiana's law and is unusual, because Louisiana is one of just three states that allow individuals and some businesses to deduct 100 percent of their federal income taxes from the amount that they pay in state taxes.
The good news for Gov. John Bel Edwards and state legislators is that the Treasury should be getting more money from income taxpayers, but it is not entirely clear how much it will amount to. That's because of the sweeping nature of the tax bill pushed by the GOP and written in considerable haste in Congress last month.
A number of back-of-the-envelope calculations in the State Capitol suggest it could be $200 million or more new state money. That's not enough to eliminate the giant budget crisis looming as 2016's temporary taxes expire on June 30. But it's still not chump change.
"Obviously, that could help us resolve a portion of the cliff," Edwards said, referring to the "fiscal cliff" the state faces if temporary taxes are not renewed or replaced by June 30.
However, it's not an immediate windfall: Most people owing a lot of money will pay up in May 2019 for the 2018 tax year. Some other sort of bridge funding will be needed.
Is it a good idea to keep such a big tax break — the deduction costs the Treasury more than $1 billion every year — when other states don't? Expert opinion probably leans to the view of the Public Affairs Research Council, which argued recently that it's best to eliminate the deduction and use the money to cut income tax rates.
Edwards has not backed that reform idea, although he has backed other long-standing reform ideas proposed by a legislative task force.
Part of the problem is just practical politics: The deduction would be repealed by constitutional amendment, requiring a statewide public vote that is hard to get for such a complex issue.
Another issue is the nature of the new federal tax bill itself: Passed with scant Democratic support, it might not have staying power. Its provisions might well be revisited if the GOP loses its majority in the U.S. House or Senate, or both, in the fall elections.
Regrettably, we're in an era of partisan disagreements where there isn't enough compromise to deliver long-term tax policy that is sustainable and consistent, so that the private sector can intelligently plan for growth.
What is clear enough is that most people will still get a tax cut, just that in Louisiana it's reduced by the higher amount of state tax.
Gov. John Bel Edwards drew a Jan. 19 line in the sand for Louisiana House Republicans to put up or shut up.