Like just about every other state in the nation, Louisiana faces a serious budget deficit, one that some analysts believe could reach as much as $2 billion (almost one-fifth of its general fund budget) in the coming year. Unlike other states, though, Louisiana has an option for closing a substantial portion of that gap that would not entail cutting spending below current levels or raising taxes above what people currently pay.
What is this seemingly "free lunch"? Well, policymakers in Louisiana could significantly shrink the projected deficit by cancelling -- or at the very least, suspending -- the substantial tax cuts that have been enacted over the last two years but that have yet to take effect. In July 2007, Louisiana adopted a change in its personal income tax that will ultimately allow some Louisianans to reduce their incomes for state tax purposes by the full difference between their federal itemized deductions and their federal standard deduction (often referred to as "excess itemized deductions"). That change was to be implemented in three stages, with the final stage scheduled to occur this year.
In June 2008, the state made another change to the income tax, expanding the bottom tax bracket so that more of people's incomes would be taxed at a rate of 2 percent instead of the top rate of 4 percent. While this latter change was far more significant in size, it was also delayed in effect; Louisiana residents won't see any change in tax withholding until July.
Repealing these cuts -- or delaying them, as Lieutenant Governor Mitch Landrieu recently advocated -- would bring in at least $350 million more in tax revenue each year than is now expected, yet the level of taxes Louisianans would pay would stay exactly the same as it is today.
For more about Louisiana's budget situation, visit the Louisiana Budget Project's web site.