Louisiana News


Giving the Gas Tax a New Look in Louisiana


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It may sound strange, but there are very few tax policy issues that generate support among lawmakers quite like a gas tax hike—at least at the state level.  While the federal government may not be interested in raising its gas tax anytime soon, 19 states have enacted gas tax increases and/or reforms since 2013.  And all signs are pointing toward that number growing in the months ahead.

Louisiana is among the states that will seriously consider a gas tax increase in 2017, and for good reason.  At the start of next year, the state’s gas tax rate will officially become 27 years old.  Only five states (Alaska, Oklahoma, Mississippi, South Carolina, and Tennessee) have waited longer since last updating their tax rates.  Unsurprisingly, most of those five states will be considering gas tax increases next year as well.

Last week I had a chance to travel to Baton Rouge to speak with the Louisiana Governor’s Task Force on Transportation Infrastructure Investment.  Part of that conversation (PDF) included a look at how growth in construction costs and improvements in vehicle fuel economy have combined to erode the purchasing power of Louisiana’s gas tax by 47 percent since 1990.  And on top of that, we know with almost complete certainty that both of these developments are going to continue to impact the state’s gas tax in the years ahead.

The only way to shore up gas tax revenues for the long run in the face of inevitable inflation and fuel economy growth is to index the tax rate to inflation or some other economic measure.  This sensible reform is growing in popularity.  Five states (Maryland, Pennsylvania, Rhode Island, Utah, and Virginia) as well as the District of Columbia have adopted indexed gas taxes in just the last three years.  Today most Americans live in states with variable-rate gas taxes of some type.

My presentation (PDF) dives more deeply into some of the details—including a discussion of how volatility can be avoided under an indexed gas tax.  But it’s already clear that the big picture issues are well understood in Louisiana.  Department of Transportation and Development Secretary Shawn Wilson says that in his extensive conversations with stakeholders and citizens thus far, “we hear people say we need to invest more” in infrastructure.  And the means of generating that investment are becoming increasingly clear: “at all of the meetings there was a pretty vocal level of support for addressing the gas tax.”


Surveying State Tax Policy Changes Thus Far in 2016


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With the exception of New Jersey, the dust has now settled on most state legislatures' 2016 tax policy debates.  Many of the conversations that took place in 2016 were quite different than those that occurred over the last few years.  Specifically, the tax cutting craze sparked by the election of many anti-tax lawmakers in November 2010 has subsided somewhat—at least for now.  For every state that enacted a notable tax cut in 2016, there was another that took the opposite path and opted to raise taxes.  And contrary to what you may expect, the distinction between tax-cutting and tax-hiking states did not always break down along traditional partisan lines.

The most significant theme of 2016 was one we've written about before: the plight of energy-dependent states whose budgets have been battered by falling oil and gas prices as well as the growing cost of tax cuts enacted during the "boom" years. In conservative-leaning energy states such as Louisiana, Oklahoma, and West Virginia, lawmakers raised taxes to help deal with these issues in the short-term, but long-term solutions are still needed.

Tax increases elsewhere were enacted to fund health programs (California), raise teacher salaries (South Dakota), and expand tourism subsidies (Oregon).  In Pennsylvania, meanwhile, a significant but flawed tax package was enacted to cope with a large general fund revenue shortfall.

On the tax cutting side, the "tax shift" craze was less pronounced than usual this year. Again, however, New Jersey lawmakers may be the exception as they continue to debate a shift toward gas taxes and away from some combination of income, estate, and sales taxes.  Moreover, some of the tax cuts that were enacted this year may ultimately set the stage for future "tax shifts," as lawmakers in states such as Mississippi and Tennessee search for ways to fund tax cuts whose full cost won't be felt for many years.

Looking ahead, debates over tax increases in Alaska and Illinois are likely to resume once the November elections have passed.  On the other hand, lawmakers in Arkansas, Mississippi, Nebraska, and elsewhere are already positioning themselves for tax cut debates in 2017.  But before that happens, there are also a significant number of revenue raising ballot proposals to be voted on in California, Colorado, Maine, Massachusetts, Missouri, Oklahoma, and Oregon.

Below is our summary of 2016 state tax happenings, as well as a brief look ahead to 2017.

Tax Increases

Louisiana: Tax increases of varied sorts were among the strategies lawmakers employed this year to address billion dollar deficits for FY16 and FY17. The most significant was a one cent increase to the sales tax, a regressive hike that gives the state the highest combined state and local sales tax rate in the country. Given the severity of Louisiana's revenue shortfall, much of the appeal of this approach came from the fact that it could be implemented quickly. But while a higher sales tax will generate hundreds of million of dollars in needed revenue, it is also set to expire in July 2018 and is not a permanent solution to the state's fiscal stress. Over the course of two special sessions, lawmakers also: increased cigarette and alcohol excise taxes; extended, expanded, or reinstated taxes on telecommunications, hotel, and auto rentals; cut vendor discounts; limited deductions and credits that benefit businesses; and increased a tax on the health insurance premiums of managed care organizations. All of these incremental changes buy the state some time in the short-term, but the need for more substantive reform remains.

Oklahoma: To fill the state's $1.3 billion shortfall, Oklahoma lawmakers enacted a number of policy changes that will harm the state's poorest residents and set the state on an unsustainable fiscal path. Oklahoma's 2016-17 budget relied heavily on one-time funds. Lawmakers opted to change the state portion of the Earned Income Tax Credit (EITC) from refundable to non-refundable, meaning that poor families earning too little to owe state income taxes will now be ineligible for the credit. While this will have a noticeable impact on those families' abilities to make ends meet, the $29 million saved as a result of this policy change is a drop in the bucket compared to the $1 billion in revenue lost every year from repeated cuts to the state's income tax. Thankfully, though, cuts to the state’s sales tax relief credit and the child tax credit were prevented, and full elimination of the state EITC was avoided. Lawmakers also capped rebates for the state's "at-risk" oil wells, saving the state over $120 million. On another positive note, Oklahoma lawmakers eliminated a nonsensical law, the state's "double deduction," that allowed Oklahomans to deduct their state income taxes from their state income taxes. 

Pennsylvania: Pennsylvania lawmakers avoided broad-based tax changes, largely relying instead on regressive tax options, dubious revenue raisers, and one-time funds—most of which fall hardest on the average Pennsylvanian—to fill the state’s $1.3 billion revenue shortfall. The state’s revenue package draws primarily from expanded sales and excise taxes. In particular, it includes a $1 per pack cigarette tax increase and a tax on smokeless tobacco, electronic cigarettes, and other vaping devices along with changes to the state's sale of wine and liquor. State lawmakers also opted to include digital downloads in the sales tax base and put an end to the “vendor discount”—an unnecessary sales tax giveaway that allowed retailers to keep a portion of the tax they collected from their customers.

West Virginia: Lawmakers in West Virginia punted, for the most part, on solving their fiscal problems this year. Instead, they addressed the state’s $270 million shortfall with budget cuts, tobacco tax increases, and one-time funds. The state increased cigarette taxes by $0.65 per pack and will tax electronic cigarettes and vaping liquids. Even with this $98 million revenue gain, shortfalls are not last year’s news. Ill-advised tax cuts and low energy prices will again put pressure on the state’s budget in 2017.

South Dakota: South Dakota lawmakers enacted a half-penny sales tax increase, raising the rate from 4 to 4.5 percent. The increase will fund a pay raise for the state's teachers, who are currently the lowest-paid in the nation. Though they rejected a less regressive plan to raise the same amount of funding by raising the sales tax rate a whole cent and introducing an exemption for grocery purchases, progressive revenue options are very limited in states like South Dakota that lack an income tax, and lawmakers can be applauded for listening to public opinion that consistently favors raising revenues to fund needs like education.

California: This past session, California lawmakers were able to drum up the two-thirds majority support needed to extend and expand the state's health tax levy on managed care organizations. The prior tax expired on July 1, 2016 and was deemed too narrow to continue to comply with federal requirements. By extending the tax to all managed care organizations, California lawmakers were able to preserve access to over $1 billion in federal match money used to fund the state's Medicaid program.

Oregon: Lawmakers approved an increase to Oregon's tourist lodging tax from 1 to 1.8 percent in order to generate more revenue for state tourism funds, specifically to subsidize the World Track and Field Championships to be held in the state in 2021.

Vermont: Vermont’s 2016 revenue package included a few tax changes and a number of fee increases. Tax changes included a 3.3 percent tax on ambulance providers and the conversion of the tax on heating oil, kerosene, and propane to an excise tax of 2 cents per gallon of fuel. The move from a price-based tax to one based on consumption was meant to offset the effect of record low fuel prices.

Tax Cuts

Mississippi: Mississippi lawmakers made some of the most irresponsible fiscal policy decisions in the country this year. For one, they opted to plug their growing transportation funding shortfall with borrowed money rather than raising the necessary revenue. And at the same time, despite those funding needs and the fact that tax cuts enacted in recent years caused a revenue shortfall and painful funding cuts this very session, legislators enacted an extremely costly new round of regressive tax cuts and delayed the worst of the impacts for several years. By kicking these two cans down the road at once, lawmakers have avoided difficult decisions while putting future generations of Mississippians and their representatives in a major fiscal bind.

Tennessee: Tennessee legislators, who already oversee one of the most regressive tax structures in the nation, nonetheless opted to slash the state's Hall Tax on investment and interest income. The Hall Tax is one of the few progressive features of its tax system. After much debate over whether to reduce, eliminate, or slowly phase out the tax, an unusual compromise arose that will reduce the rate from 6 to 5 percent next year and repeal the tax entirely by 2022. While the stated "legislative intent" of the bill is to implement the phase-out gradually, no specific schedule has been set, essentially ensuring five more years of similar debates and/or a difficult showdown in 2021.

New York: New York lawmakers approved a personal income tax cut that will cost approximately $4 billion per year. The plan, which is geared toward couples earning between $40,000 and $300,000 a year, will drop tax rates ranging from 6.45 to 6.65 percent down to 5.5 percent. The tax cut will be phased-in between 2018 and 2025. Gov. Andrew Cuomo said that the plan “is not being paid for” since its delayed start date pushes its cost outside of the current budget window.

Florida: The legislative session in the Sunshine State began with two competing $1 billion tax-cut packages and ended with a much more modest result. In the end, the state made permanent a costly-but-sensible sales tax exemption for manufacturing equipment, reduced its sales tax holiday down to three days, and updated its corporate income tax to conform with federal law, along with several other minor changes. Ultimately, the plan is expected to reduce state revenues by about $129 million. The legislature also increased state aid to schools, which is expected to reduce local property taxes and bring the total size of the tax cuts to $550 million if those local reductions are included.

North Carolina:  Billed as a "middle-class" tax cut, North Carolina lawmakers enacted an increase in the state's standard deduction from $15,500 to $17,500 (married couples).  This new cut comes on top of four years of tax changes that are slowly but surely moving the state away from relying on its personal income tax and towards a heavier reliance on consumption taxes. 

Rhode Island: While an increase in the state's Earned Income Tax Credit (EITC) from 12.5 to 15 percent of the federal credit was a bright spot in Rhode Island this year, lawmakers also found less than ideal ways to cut taxes. Specifically, they pared back the corporate minimum tax to $400, down from $450 in 2016 and $500 the year before. The state will also now provide a tax break for pension/annuity income for retirees who have reached their full Social Security age. It exempts the first $15,000 of income for those earning up to $80,000 or $100,000, depending on filing status.

Hawaii: Hawaii legislators made changes to their state's Child and Dependent Care Tax Credit this year, slightly expanding the credit by altering the method for determining the percentage of qualifying child care expenses.

Oregon: Lawmakers increased the state's Earned Income Tax Credit from 8 to 11 percent for families with dependents under 3 years old. Qualifying families will be able to claim this larger credit starting in tax year 2017.

Arizona: There was much talk of tax reform in Arizona this year. Gov. Doug Ducey expressed interest in a tax shift that would phase out the income tax over time and replace it with a regressive hike in the state's sales tax. That plan, thankfully, did not come to fruition this year. Rather, state lawmakers enacted a grab bag of (mostly business) tax cuts, including an expansion of bonus depreciation and sales and use tax exemptions for manufacturing.

Stalled Tax Debates Likely to Resume in 2017

Alaska: Faced with a multi-billion revenue hole, state lawmakers weighed and ultimately punted on a range of revenue raising options—including, most notably, the reinstatement of a personal income tax for the first time in 35 years. Notably, however, Gov. Bill Walker did scale back the state's Permanent Fund dividend payout through the use of his veto pen.                                         

Georgia: Ambitious plans to flatten or even eliminate Georgia's income tax ultimately stalled as advocates showed (PDF) these measures would have amounted to enormous giveaways to the state's wealthiest residents, drained $2 billion in funding for state services over five years, and even threatened the state's AAA bond rating.

Idaho: Lawmakers in the House enthusiastically passed a bill that cut the top two income tax rates and gave the grocery credit a small bump, but the bill stalled in the Senate where lawmakers were more interested in addressing education funding than a tax break for the state's wealthiest residents.

Illinois: After a year of gridlock, Illinois lawmakers passed a stopgap budget. Unfortunately, this "budget" amounts to no more than a spending plan as it is untethered from actual revenue figures or projections. Its main purpose is to delay the work of much needed revenue reform until after the November election.

Indiana: An effort to address long-standing needs for infrastructure improvement in Indiana resulted in lawmakers abandoning all proposals to raise new revenue, relying instead on a short-term plan of shifting general revenue to the state highway fund. Over the next two years this change will generate some $230 million in "new money" for transportation projects at the expense of other critical public services.

Maryland: Maryland lawmakers rejected two tax packages that included more bad elements than good. While the plans included an innovative expansion of the state's Earned Income Tax Credit (EITC) for childless low- and middle-income working families, this valuable reform would have been paired with income tax cuts that would have unnecessarily benefitted the very wealthiest.

What Lies Ahead?

Key Tax-Related Measures on the Ballot in November

California: State officials have announced that seventeen (and possibly more) initiatives will appear on California's ballot this November. Among them are several tax initiatives, including extending the current income tax rates on high-income earners, raising the cigarette tax by $2 per pack, and the implementation of state, and potentially local, taxation on the sale of marijuana if legalized.

Colorado: A campaign is underway to gather the signatures required to place a proposal to raise tobacco taxes on the ballot this November. The measure would raise the tax on cigarettes from $0.84 to $2.59 per pack and increase the tax on other tobacco products by 22 percent. If approved, the proposal would raise $315 million each year for disease prevention and treatment and other health initiatives.

Maine: The Stand up for Students campaign is behind a ballot measure in Maine that would enact a 3 percent income tax surcharge on taxable income above $200,000.  If approved, the additional tax would bring in well over $150 million annually to boost support for K-12 classroom instruction.

Missouri: Three tax-related questions will be posed to Missouri voters in November.  Two are competing tobacco tax increase measures of 23 and 60 cents per pack.  The third measure would prevent state lawmakers from reforming their sales tax by expanding its base to include services in addition to currently taxed tangible goods.

Oklahoma: Oklahoma state question 779, to increase Oklahoma's sales tax 1 cent to fund teacher pay increases and other educational expenses, will appear on the state's ballot this November.

Oregon: Voters in Oregon will have the final say on a proposal to increase taxes on corporations this fall. Measure 97 (previously known as IP-28) would increase the state's corporate minimum tax for businesses with annual Oregon sales over $25 million. Under current law, corporations pay the greater of a tax on income (6.6 percent on income up to $1 million and 7.6 percent on income above $1 million) or a minimum tax on sales ($150 to $100,000). Measure 97 would eliminate the $100,000 cap on the sales-based portion of corporate minimum tax and apply a 2.5 percent rate to sales above $25 million.  If passed the measure would generate $3 billion in new revenue earmarked specifically to education, health care, and services for senior citizens.

Laying the Groundwork for Significant Tax Cuts, Tax Shifts, and Tax Reform in 2017:

The saying "after the calm comes the storm" may prove true for state tax policy debates next year.  Lawmakers in more than 20 states have already begun to lay the groundwork for major tax changes in 2017, most with an eye towards cutting personal income taxes and possibly increasing reliance on consumption taxes.  Lawmakers in energy dependent states including Alaska, Louisiana, West Virginia and New Mexico will need to continue to find long-term revenue solutions to their growing revenue problems.  Illinois and Washington lawmakers will also be debating significant revenue raising options.  Governors in Nebraska, Arkansas, Kentucky, Ohio, Arizona and Maryland will take the lead on tax cutting (and possibly income tax elimination) proposals.   Mississippi lawmakers are currently meeting to discuss ways to shift the state's reliance on income taxes towards "user- based" taxes (i.e. regressive consumptions taxes).  And, Kansas lawmakers will likely revisit the disastrous tax changes under Governor Brownback.  


State Rundown 8/17: Oregon, Louisiana, Nebraska, Alabama and California


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This week we’ve got updates on tax and budget news in Oregon, Louisiana, Nebraska, Alabama and California. Be sure to check out the What We’re Reading section for links about the latest on Kansas, an editorial from the Wall Street Journal and a new report from The Brookings Institution. Thanks for reading the Rundown! 

-- Meg Wiehe, ITEP State Policy Director, @megwiehe 

 

  • With rising costs currently projected to outpace new revenueOregon faces the challenge of cutting $1.35 billion in services from the 2017-2019 budget or raising additional revenue. Taxpayers will have a significant say on this matter in November as they decide the fate of ballot Measure 97 (formerly IP 28), a proposed increase to the corporate minimum tax on large businesses. 

  • Although Louisiana lawmakers held three sessions in 2016 to resolve several budget deficits, their solutions will provide only momentary relief as the state is projected to face a $1.5 billion deficit in 2018 when many of the temporary taxes passed this year expire.   

  • The new fiscal year in Nebraska is off to a sputtering start, with revenues already running 7.6 percent behind the forecast, contributing to rumblings about a special session this fall to balance the books before legislators start debating the next two-year budget in January. State agencies are already being told to identify potential 8-percent cuts for that upcoming budget cycle. Unsurprisingly, none of this has deterred the state Chamber of Commerce from calling for further tax cuts that would only make these matters worse. 

  • Alabama's legislature convened this week to begin its special session on the state's $85 million Medicaid funding gap, the governor's proposal to create a state lottery system to fill that gap, distribution of settlement money from the BP oil spill, and possibly raising the state's outdated gas tax. Keep an eye on the Tax Justice Blog for more on these developments later in the week.
  • A proposed bill to exempt Olympic medal bonuses from the income tax went nowhere in California this week, but legislation to temporarily exempt diapers from the sales tax was approved by the legislature and awaits the Governor's approval.  

 What We're Reading...    

  • Kansas Center for Economic Growth's Duane Goossen spells out the unavoidable pressure point Kansas has been marching toward—whether to cut services even deeper or raise revenue. 

  • The Wall Street Journal's Editorial Board comes out against what it creatively calls "regressive taxation"--you know, income transfers "from the private economy to the privileged government class." 

  • The Brookings Institution released a report outlining the challenges states face when relying too heavily on oil, natural gas, and coal taxes. 

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Kelly Davis at kelly@itep.org. Click here to sign up to receive the Rundown via email.

 


Guest Blog Post: The 2016 Legislature: Unfinished Business


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Thanks to Jan Moller from the Louisiana Budget Project for guest posting for us about the end of Louisiana's three legislative sessions held this year. Find a more detailed commentary on what was and wasn't accomplished here (PDF).

The three sessions that comprised the 2016 Louisiana Legislature should be remembered as much for what was accomplished as what wasn’t. While elected officials raised enough revenue to avoid the most serious cuts, they left major holes in the budget that will impact students from kindergarten through college and set back the state’s efforts to reform its criminal justice system.

Perhaps more importantly, legislators failed to make the long-term structural reforms needed to put Louisiana’s budget back on solid footing. That means the work of building a fairer and sustainable revenue and budget structure must continue next year, as many of the revenue measures that were passed in 2015 and 2016 come with expiration dates. The Legislature didn’t fix Louisiana’s fiscal problems so much as it bought some time for real reforms to be made.

Gov. John Bel Edwards and the Legislature deserve credit for ending the pernicious practice of balancing the budget using “one-time” dollars that have no replacement source in future years. The 2015-16 budget was built with $826 million in one-time dollars, which contributed greatly to the initial $2 billion shortfall in the fiscal year that starts July 1. Next year’s budget is free of such “funny money,” and represents a more honest balance between revenues and expenses.


State Rundown 6/23: Budget and Tax Happenings


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Thanks for reading the State Rundown! Here's a sneak peek: Alaska’s legislative session continues to drag on, sessions in Louisiana, New Jersey, Pennsylvania, and Rhode Island are potentially nearing their end and Philadelphia’s got a new soda tax. Don’t forget to check out What We’re Reading.

-- Meg Wiehe, ITEP State Policy Director, @megwiehe

  • There is no immediate end in sight for Alaska’s legislative session, originally set to end in mid-April. This week Gov. Bill Walker called the Legislature back for yet another special session to consider tax and Permanent Fund legislation. Scheduled to reconvene in July, the Legislature will continue to grapple with ways to close the state’s $4 billion budget deficit. ITEP's analysis of revenue options finds that an equitable solution cannot be reached without a personal income tax.
  • Louisiana’s special session to address a FY17 $600 million budget gap ends tonight at midnight. The House has approved $284 million in new revenue, the majority from an increased tax on HMOs and revised business tax credits. All significant income tax reform measures failed in the House, and the Senate has given up on reviving the proposal to eliminate the personal income tax deduction for state taxes. With $200 million less than expected corporate income and a $27 million accounting error, new revenues fall significantly short of what is needed to fill the hole—the TOPS scholarship program and safety net hospitals will likely feel the most significant cuts.
  • New Jersey’s tax debate and fiscal crunch are coming down to the wire this week and next, as the state’s Transportation Trust Fund (TTF) is set to run out of money for repairing and maintaining roads and bridges in the Garden State on June 30th. Raising the state’s gas tax, which has not been adjusted for inflation or changing needs since 1988, is the obvious way of shoring up the TTF. Yet in what the New Jersey Star-Ledger is calling “an astonishing capitulation,” the debate continues to focus largely on using the TTF crisis as an opportunity to pass tax cuts that primarily benefit the most well-to-do New Jersey residents.
  • Pennsylvania's Gov. Tom Wolf abandoned calls to raise revenue through the state sales or income tax this year. This is an unfortunate turn of events for the Keystone State. ITEP analysis found that the Governor's proposal to increase the state's flat personal income tax rate from 3.07 to 3.4 percent, coupled with increases to the state's tax forgiveness credit to mitigate the impact on low-income families, would be an equitable solution to help address the state's revenue shortfall.
  • The Philadelphia City Council approved a new tax on soda and sweetened beverages last week making it the first major US city to impose this additional levy. The estimated $91 million raised from the 1.5 cent per ounce tax will primarily be used to fund an expansion of the city's early childhood education program.
  • The Rhode Island House and Senate approved an $8.9 billion budget that has already received praise from Gov. Gina Raimondo. The budget, in brief, provides a tax break for retirees, reduces the corporate minimum tax down to $400 from $450, cuts beach parking fees, increases education aid and expands the state's Earned Income Tax Credit from 12.5 to 15 percent of the federal credit. 

What We're Reading...

  • This Washington Post Wonkblog piece examines the impact of opposite approaches to tax policy in Kansas and California (bonus- it also features ITEP data).
  • The Kansas City Star takes down false claims from some lawmakers who are peddling misleading”'facts” to constituents about the state's fiscal and economic health.
  • A new report from the Economic Policy Institute documents growing income inequality across the states.

State Rundown 6/16: Budgets, Tax Debates, and Legislative Progress


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Thanks for reading the State Rundown!

Here's a look at what we're thinking about this week: the latest on Louisiana’s second special session, North Carolina’s Senate took steps to constitutionally cap the state’s income tax rate, West Virginia lawmakers passed a budget, “dark store” drama in Michigan, some in Missouri want to freeze sales the state’s tax base, and tax debates rage in New Jersey.

We are also debuting a new feature, News We’re Watching. After the Rundown you’ll see links to what our staff is reading this week. I’d love to hear from you especially about this new feature. Feel free to reach out on Twitter @megwiehe.

Lastly, this week Carl Davis, our Research Director, joined Twitter. Follow him @carlpdavis

 -- Meg Wiehe, ITEP State Policy Director, @megwiehe

In the second special session this year to address budgetary gaps, the Louisiana House Ways and Means Committee narrowly approved a complicated measure yesterday that would turn a costly tax deduction claimed mostly by households making over $100,000 into a short-term lending mechanism to the state. As originally proposed, HB 38 would permanently limit the itemized deductions in excess of the standard deduction taxpayers could claim to 57.5 percent. The amended bill exempts charitable and mortgage interest deductions from the 57.5 percent limitation and temporarily suspends the availability of the deduction until 2018, at which point taxpayers can claim the lost value of the deduction from the previous two years. The amended bill is estimated to raise $115 million of the $600 budget gap, but would create a liability of over $250 million in 2018—the same year the state is scheduled to lose $1 billion in revenue from temporary tax increases enacted in March, most notably the 1-penny sales tax increase. HB 38 goes to the full House today.

Also, the Louisiana House  voted down contingent bills HB 7 and HB 17, which would have eliminated the deduction for federal personal income taxes while creating a flat tax with a problematic capped rate—measures that would not address the state's immediate revenue needs and severely limit the ability of lawmakers to raise revenue in the future through the progressive income tax. The Louisiana Senate will consider a bill today that would require oil, gas, and chemical companies to choose between two tax breaks, which if passed, would raise $146 million in revenue for the next budget cycle.

North Carolina Senators approved a bill this week that would change the state’s constitution to prevent the state's income tax rate from ever going above 5.5 percent (the 2017 rate is 5.499%) via a voter referendum.  As our guest blogger Cedric Johnson wrote earlier in the week, the cap would forever lock in recent tax decisions that have primarily benefitted wealthy North Carolinians, force higher sales and property taxes, tie the hands of future lawmakers, and cut off a vital source of revenue needed to invest in education and healthy communities.  The bill was scheduled to go to the Senate floor on Wednesday, but at the last minute was pulled and moved to Saturday, June 25th a sign, according to the NC Budget and Tax Center, that the tax cap will be linked to budget negotiations in order to get the House to play along.

The West Virginia Legislature passed a compromise budget (SB 1013) earlier this week to close the state's $270 million budget shortfall, bringing their 17 day special session to an end as they await Gov. Earl Ray Tomblin's signature. After vetoing an earlier budget proposal that did not include any tax increases, Gov. Tomblin is expected to sign off on this version of the budget which includes a $98 million tax increase on cigarettes, e-cigarettes, and other tobacco products, a $70 million withdrawal from the state's Rainy Day Fund, and a range of budget cuts. $15 million in funding for the Public Employee Insurance Agency to offset premium increases for retirees and reduce premium increases and benefit cuts for current employees helped seal the deal. Other approved measures include the restoration of funding to the Volunteer Fire Department Workers' Compensation Premium Subsidy Fund and providing current year financial support to Boone County Schools.

With big-box retailers increasingly using a tactic known as the “dark store” method to avoid property taxes on brand-new multi-million-dollar stores, Michigan legislators are fighting back. The “dark store” method involves challenging property appraisals by arguing that they should be based on the value of nearby vacant and obsolete retail stores, while also building restrictions into the deeds of such stores that make them virtually worthless to any would-be buyers. The retailers point to those “dark stores” and deed restrictions (such as prohibiting a hardware store building from being used as a hardware store again if sold) to challenge their appraisals and drastically reduce their property taxes in the process.  Local governments in Michigan have already lost more than $200 million due to this dubious practice. Legislation that would clarify the rules and steps for property appraisals to ensure this tactic cannot be used in the future passed through the Michigan House late last week and now moves to the Senate.

Most state sales taxes were created in a time when buying tangible goods (scissors and combs, for example) was far more prevalent than buying services (like haircuts). Over the last few decades, as the U.S. economy becomes more and more service-based, many states have attempted to update their sales tax laws to include more services. Regrettably, some voters in Missouri are working to freeze that state’s tax code in the past, as signatures have been gathered to put a constitutional amendment on the ballot in November to restrict the sales tax from ever applying to any “service or activity” not already subject to tax.

 Tax debates continue to rage on in New Jersey, where the state’s Transportation Trust Fund is only funded until June 30. Legislators in both the House and Senate are working on plans to raise the state gas tax -- which is one of the lowest in the nation and has not been updated since 1988 -- to ensure funding for the state’s roads and bridges continues. But Gov. Chris Christie insists he won’t sign such a measure unless it also includes major tax cuts. The plans proposed thus far include a number of tax cuts for various groups in hopes of either winning over Gov. Christie or securing enough votes to override his veto. Some of the recent proposals have included a repeal of the state’s estate tax, an expansion of the existing pension and retirement income exclusion, an expansion  play along.the state Earned Income Tax Credit, and a new deduction for charitable contributions. With so much at stake and so many components to multiple tax packages, it will be a bumpy ride to close out the month in the New Jersey legislature.

News We're Watching:

Here’s a few other state tax-related stories that caught our eyes this week:

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Kelly Davis at kelly@itep.org. Click here to sign up to receive the Rundown via email.


Our Take: Facing Immediate Need, LA Lawmakers Should Take Steps Toward Longer-Lasting and Progressive Tax Reform


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Louisiana lawmakers are in the second special session of the calendar year to once again address significant budget shortfalls—this time for the coming fiscal year starting July 1.

ICYMI, here’s a brief recap of events leading up to this extraordinary session: short-sighted income tax cuts under the Blanco and Jindal administrations followed by stagnating sales tax revenues and declining oil prices left lawmakers facing a $900 million gap in the current fiscal year (ending June 30) and about twice that for the coming fiscal year. Lawmakers were able to most of close the FY 2016 and substantially narrow the FY 2017 gaps during the first special session in March through a mix of spending cuts, one-time fiscal measures, and mostly temporary tax changes—most notably a regressive 1 cent sales tax hike, giving LA the highest combined state and local sales tax rate in the country. While the legislature recently passed a FY 2017 budget, it is still $600 million short.

As the governor stated in his remarks opening the second session, this unresolved fiscal crisis presents Louisiana the opportunity to “get ahead of the game” on reforms they will need to not only fund essential services this year but also to create stability going forward. Not all proposals under consideration will move Louisiana in the right direction—here’s our take on some of the key proposals:

1.       Eliminate the federal income tax deduction—but don’t blow the savings on a capped flat tax 

The deduction for federal income taxes paid is an unusual personal income tax break that allows taxpayers to subtract the value of the federal income taxes they pay in a given year from their Louisiana taxable income. It is incredibly costly to the state (and expected to balloon as the federal income taxes paid by wealthy tax payers increase) and provides very little benefit to low- and middle-income families. A recent ITEP analysis found that this reform alone would more than close LA’s current budget gap, saving the state over $950 million a year, 83 percent of which would come from households in the top 20 percent of income. 

Elimination of this deduction has been proposed as a part of contingent bills HB 7 and HB 17, which would also flatten Louisiana’s personal income tax to a single rate of 3.8 percent (applied starting at $25,000 of taxable income for married couples) and constitutionally cap this rate at 4.75 percent. These bills blow the savings from eliminating the deduction for federal income taxes on a flat tax system that raises no additional revenue to address the current budgetary gap and may even, according to an ITEP analysis, be a revenue loser

Under the maximum rate set by the proposed cap, we estimate HB 7 and HB 17 would raise $750 million, which would be enough to plug the budgetary gap for the coming year, but $850 million short of what is needed to replace the $1 billion in revenue when the temporary sales tax increase expires in 2018. Given that Louisiana already has the highest combined state and local sales tax rate in the country, limiting the ability of lawmakers to raise needed revenue in the future through the more progressive income tax is terrible tax policy. 

2.       Make steps toward restoring sensible income tax brackets and rates

In 2003, Louisiana enacted progressive reforms by exempting food and residential utilities from the regressive sales tax and raising the income taxes paid by higher income earners. Lawmakers kept the sales tax changes but repealed the income tax reforms (aka the Stelly Plan) post-Katrina when the state budget was flush with federal recovery dollars, leaving the state short an estimated $1 billion annually once those dollars dried up.   

Rather than moving to a flat tax structure, the sensible and fiscally responsible thing for lawmakers to do is to take steps to restore the Stelly income tax brackets, under which the highest marginal rate of 6% applied to income over $50,000 for households married filing jointly (MFJ) ($25,000 if single) rather than $100,000 ($50,000 if single).

ITEP’s analysis found that adoption of the governor’s proposal to change the individual income tax brackets in the first special session (HB 34 which was a modified Stelly bracket applying the top rate to taxable income above $60,000 for MFJ filers) would have raised over $380 million, which is over 60 percent of the revenue needed to close the FY 2017 gap.

3.       Reduce the excess itemized deductions on individual income taxes

A proposal to limit the itemized deductions individuals can claim on their state personal income taxes above the federal standard deduction will be given a second chance today in the House Way and Means Committee. The first version of the proposal would have allowed individuals to take 57.5 percent of the deduction instead of 100 percent. The bill is expected to be reintroduced with amendments.

An ITEP analysis of a similar proposal found that reducing excess itemized deductions to 50 percent would bring in $115 million in revenue (20 percent of what is needed to close the FY 2017 gap) and impact fewer than 20 percent of all Louisiana households.

HB 7 and HB 17, mentioned above, would entirely eliminate these deductions, but the estimated $300 million in savings to the state is zeroed out by the problematic capped flat tax structure. 

If lawmakers adopted only the second and third of these suggested reforms, they could close more than 80 percent of the budget gap facing the state next year—saving college tuition assistance, low-income hospitals, and other social services from devastating cuts—and would also be making critical steps toward enacting longer-term, more progressive reforms.

Are the days of “patching [the] budget together through duct-tape solutions, maxed out credit cards and misguided fund sweeps” over? They should and can be. Here’s to hoping LA lawmakers will take these steps to move the state in the right direction. 

 


State Rundown 6/2: Austerity Budgets By Choice


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Thanks for reading the State Rundown! Here's a sneak peek: West Virginia lawmakers reject cigarette tax increase but still negotiating. Alaska legislature passes compromise budget, punts on oil and gas credits. Louisiana legislature will enter second special session to discuss tax reform. Oklahoma lawmakers gut EITC, use budget cuts, and one-time gimmicks to close budget gap. Progressive policy advocates win expansion of working family tax credit in Minnesota.

-- Meg Wiehe, ITEP State Policy Director, @megwiehe


 

West Virginia lawmakers resumed budget talks this week after a failure to reach a deal before Memorial Day weekend. Previous efforts to pass a budget stalled when House lawmakers rejected Gov. Earl Ray Tomblin's proposed increase of the cigarette tax. The 45-cent-per-pack increase, along with similar percentage increases on other tobacco products, would have raised $76 million in new revenue. The House instead passed a budget bill with no new tax increases but $143 million taken from the state's rainy day fund, an amount that Gov. Tomblin is unlikely to approve. The Senate will now take up the House measure in addition to a proposal to increase the sales tax. Lawmakers need to close a $270 million budget gap, the result of ill-advised tax cuts and low energy prices. If they do not pass a budget by July 1, the state government will shut down. Some political observers believe the cigarette tax hike is not yet dead, and business groups lent their support in a letter to lawmakers.

Oklahoma lawmakers finalized a budget last week, closing a $1.3 billion gap also caused by plummeting energy prices and big tax cuts enacted in better times. The legislature managed to pass a budget with limited tax increases by slashing spending on core programs and instituting a number of one-time revenue-raising gimmicks. Lawmakers made up a small portion of the budget deficit by eliminating the refundabability of the state's EITC, saving just $29 million but reducing aid to 200,000 working families. This move has rightly been described as an “empathy gap” and a move that “makes the poor poorer.” Efforts to increase the gas tax for transportation spending, the sales tax for teacher salaries, and the cigarette tax for healthcare expansion all failed. Legislative leaders acknowledged that the state's structural budget gap will remain next year. One positive outcome was the state's elimination of its nonsensical “double deduction,” a law that primarily benefits wealthy taxpayers who itemize their deductions. For more details on tax and budget policy in Oklahoma, check out Aidan's recent blog post.

The Alaska Legislature passed a compromise budget this week in an attempt to prevent layoffs for state government workers. Lawmakers broke an impasse by postponing decisions to cut tax credits for oil and gas producers and a range of revenue raising options. Instead, they agreed to restore budget cuts to senior benefits and K-12 and higher education, and to draw $3 billion (more than 40 percent of the fund) from the state's Constitutional Budget Reserve to cover FY 2017 expenditures. The $8.8 billion compromise budget is still significantly below last year's spending levels of $9.3 billion, largely due to overhauls of criminal justice and Medicaid spending. It is unclear how Gov. Bill Walker will respond to the spending plan. The legislature will remain in session to continue to address the state's structural deficit.

Legislators in Louisiana will begin a second special session next week to address tax reform and the remaining budget deficit. Gov. John Bel Edwards issued the call for an extraordinary session from June 6th to June 23rd  to close a $600 million shortfall for FY 2017 and to resolve the state's structural deficit. The governor also issued a plan for the session that includes possible changes in corporate and personal income tax rates, taxes on healthcare entities and reforming tax credits.

Progressive advocates in Minnesota won a big victory last week when legislators passed a significant expansion of the Working Family Credit, Minnesota’s version of the EITC. Under the changes, the size of the credit will grow for most eligible families and individuals, and the income cutoff for eligibility will be raised for some families and individuals. Moreover, the age requirement for childless workers to qualify for the credit will be lowered from 25 years old to 21 years old. Minnesota is the first state (after Washington, DC) to expand the portion of the state EITC granted to childless workers. About 386,000 Minnesota families and individuals will benefit from the credit expansion, which will reduce taxes by $49 million. The Minnesota Budget Project, which led the effort to expand the Working Family Credit, notes that the credit promotes work, helps kids succeed, and reduces racial income disparities.

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email.


State Rundown 2/19: Guns, Gimmicks and Giveaways


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Thanks for reading the Rundown! Here's a sneak peek: Missouri lawmakers want to move money from anti-poverty programs to road construction in a move some are calling unconscionable. Arizona could pass a first-of-its-kind tax credit for concealed weapons carriers. Louisiana paid out more in corporate tax breaks than it made in corporate tax revenue. One North Dakota lawmaker has regrets about a recent oil tax cut.

 – Meg Wiehe, ITEP State Policy Director


The Missouri Legislature will consider a proposal to shift money from programs for poor families and children to road construction. Last year, legislators passed the Strengthening Missouri's Families Act over the veto of Gov. Jay Nixon. The two-part measure eliminated the state's Temporary Assistance for Needy Families (TANF) benefits for 9,500 Missourians (6,300 of them children) and made another 58,000 adults ineligible for food stamps. The money saved was supposed to go to job training, child care and other programs to help poor Missourians; instead, lawmakers want to spend the money on road construction to avoid raising the state's gasoline excise tax by 1.5 cents a gallon. Missouri has not seen a gas tax increase in almost 20 years.  Gov. Nixon, who supports the gas tax increase to pay for road construction, rebuked the idea of paying for roads with money diverted from safety net programs as a budget gimmick that "could jeopardize priorities such as local public schools, higher education and services for Missourians with developmental disabilities and mental illness." An editorial in the St. Louis Post-Dispatch called the proposal "unconscionable," arguing that if "Missouri drivers want better roads, they — and not the neediest among us — should bear the burden."

One North Dakota senator says the state will soon come to regret its 2015 decision to lower its oil extraction tax rate. Sen. Jim Dotzenrod said in an op-ed for the Grand Forks Herald that the rate reduction from 6.5 to 5 percent will leave North Dakota with $132 million less in annual revenue if prices remain at $25 a barrel. The rate cut was adopted last year at the insistence of lawmakers who wanted to offset the elimination of a "trigger" provision in a 1987 drilling law. The trigger provision automatically reduced the extraction tax rate if oil prices fell below a pre-determined price of about $55 per barrel; given the recent steep decline in oil prices, the effective tax rate would have fallen from 6.5 to 1 percent if the trigger were not eliminated. While eliminating the trigger was broadly supported by the state's political establishment, the choice to permanently lower the extraction rate from 6.5 to 5 percent was not. Dotzenrod notes that "the effect of this cut in the oil extraction tax could be quite high because it will be in place even when oil prices rise. For example, had this cut been in effect during the 2013-15 biennium, the revenue loss would have been well over $600 million." He believes the rate cut will adversely affect future investments in public services.  

Louisiana lawmakers are zeroing in on highly inefficient tax credits as one reason for the state's ongoing budget woes. The state's Department of Revenue reports that Louisiana paid corporations $210 million more in tax rebates and credits than it collected in corporate income and franchise taxes. From 2004 to 2014, state spending on the six largest tax credits increased from $207 million to $1.08 billion. Gov. John Bel Edwards wants lawmakers to close or reduce several corporate tax giveaways to help plug a significant revenue gap.

If you carry a firearm in Arizona, you could get a tax break. A House committee passed a new tax credit of up to $80 for Arizonans who get concealed weapons permits. Only those who obtain permits after the passage of the credit will be eligible. The bill's sponsor, House Majority Leader Steve Montenegro, says the tax credit encourages gun safety since individuals must attend firearms training classes to get a permit. The credit, which would be the first of its kind in the nation, would cost $1.9 million in revenue.

 

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email.  


State Rundown 2/17: Cuts and Crises


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Thanks for reading the Rundown. Here’s a sneak peek: Despite a revenue shortfall, lawmakers in West Virginia are moving forward with their corporate tax cuts. North Carolina lawmakers are once again talking tax cuts, Pennsylvania lawmakers are barely talking – after legislative leaders declared Gov. Wolf’s budget bill DOA. Louisiana Gov. Edwards is threatening that if his state doesn’t balance its budget the end of college football is near.  Thanks for reading.

-- Meg Wiehe, ITEP's State Tax Policy Director

 


 

North Carolina lawmakers are looking at cutting income taxes – again. This time, a House committee considered a proposal to increase the standard deduction for the second time since last year. Joint filers would see an increase of $2,000, while individuals would get an increase of $1,000. If enacted, the change would mean an additional 70,000 to 75,000 filers would owe no income tax since their income would be below the standard deduction. State revenues would decline by $195 million to $205 million annually. An editorial in The News & Observer makes the case that lawmakers should restore the state's Earned Income Tax Credit (EITC) rather than raise the standard deduction. The EITC is better targeted to those families hit hardest by regressive sales, excise, and property taxes, and it would be less costly than increasing the standard deduction, as has been pointed out by our friends at the North Carolina Justice Center.  An ITEP analysis found that the bottom 40 percent of taxpayers in the Tarheel state would receive just 28 percent of the tax cut from a change to the standard deduction, but would see more than 87 percent of the cut from reenacting a state refundable EITC.

Pennsylvania legislative leaders declared Gov. Tom Wolf's budget dead on arrival last week after the governor unveiled his plan in a speech to the legislature. Pennsylvania has not had a budget since July 2015; negotiations between legislators and the governor have broken down multiple times over the past few months. Wolf's budget address was a fiery rebuke to lawmakers with dire predictions of chaos for state workers and services if a deal is not reached soon. Wolf's proposed $33.3 billion budget includes $2.7 billion in new revenue. Under his plan, the state's flat income tax rate would increase from 3.07 to 3.4 percent, and the sales tax base would be expanded to include basic cable television, movie tickets and digital downloads. The governor would also levy a new 6.5 percent severance tax on natural gas extraction, increase the cigarette excise tax by $1 per pack, and raise taxes on other tobacco products.

Despite a major budget shortfall, West Virginia lawmakers are moving forward with a corporate tax giveaway to coal and natural gas companies. Senate Bill 419 would repeal two severance tax increases first implemented in 2005 to pay off the state's workers compensation debts. One tax is a 56-cents-per-ton levy on coal producers while the other is a 4.7-cents-per-thousand cubic feet tax on gas producers. Together, the two taxes brought in $122 million in revenue during fiscal year 2015. If repealed, the state will lose $110 million next fiscal year. The Senate Finance Committee unanimously approved the tax cuts by voice vote, "in a committee room largely empty save for members of the governor’s staff and coal and gas lobbyists." The state will finish the current fiscal year $353 million in debt.

Louisiana Gov. John Bel Edwards warned legislators that the continuing revenue shortfall could spell disaster for college athletics. In his state of the state address, Edwards told Louisianans that they could "say farewell to college football" since Louisiana State University is set to run out of money by April 30. Louisiana faces a $2 billion budget shortfall next fiscal year and needs to come up with $850 million to make it through the current fiscal year. Lawmakers have railed against the governor's proposal to increase sales and alcohol and cigarette excise taxes, but the dire situation leaves them with few options.

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.orgClick here to sign up to receive the Rundown in via email 


2016 State Tax Policy Trends: Addressing Poverty and Inequality Through Tax Breaks for Working Families


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This is the fifth installment of our six-part series on 2016 state tax trends. An overview of the various tax policy trends included in this series is here.   

As we explain in our annual report on low-income tax credits, the strategic use of Earned Income Tax Credits (EITCs), property tax circuit breakers, targeted low-income tax credits and child-related tax credits can have a meaningful impact on addressing poverty, tax fairness and income inequality in the states.  

The use of these tools is so important especially because states have created an uneven playing field for their poorest residents through their existing tax policies. Every state and local tax system requires low- to middle-income families to pay a greater share of their incomes in taxes than the richest taxpayers and, as a result, tax policies in virtually every state make it even more difficult for those families in poverty to make ends meet. Unfortunately, it does not stop there–many recent tax policy proposals include tax increases on the poor under the guise of “tax reform”.   

That reality may seem bleak, but it provides state lawmakers plenty of opportunities to improve their tax codes in order to assist their state’s lowest-income residents. Targeted low-income tax cuts can serve as a vital tool in offsetting upside down tax systems and proposed regressive tax hikes. On top of that, targeted tax breaks and refundable credits do not only benefit a state’s low-income residents–they can also pump money back into the economy, providing both immediate and long-term economic stimulus. With this in mind, a number of lawmakers are heading into the 2016 legislative session with anti-poverty tax reform on the agenda.  

This year we expect states to build on reforms enacted in 2015 with a range of policies to address poverty and income inequality–including, most notably, efforts to enact or improve state EITCs in as many as a dozen states. Unfortunately, lawmakers in a few states are looking to reduce or eliminate their EITCs.  Here’s a look at the opportunities and threats we see for states in 2016:   

Enacting state EITCs:   

Twenty-six states plus the District of Columbia currently have a state EITC, a credit with bipartisan support designed to promote work, bolster earnings, and lift Americans low-wage workers out of poverty. 

In 2016, a number of states are looking to join this group by enacting their own state EITCs. For instance, Mississippi Gov. Phil Bryant recently called for “blue collar tax dividends” to give people back a portion of their hard-earned tax dollars (he has proposed a nonrefundable state EITC). In South Carolina, a refundable EITC is on the table to help offset a largely regressive transportation revenue raising package. And lawmakers in Idaho have proposed the enactment of an EITC at 8 percent of the federal credit (PDF).  Advocates in GeorgiaHawaiiKentuckyMissouri and West Virginia are calling on their state lawmakers to enact state EITCs as a sensible pro-work tool that would boost incomes, improve tax fairness, and help move families out of poverty. 

Even states without an income tax could offer a state EITC and lift up the state’s most vulnerable. Washington State enacted a Working Families Tax Rebate at 10 percent of the federal EITC in 2008, though it still lacks sufficient funding to take effect.  

Enhancing state EITCs:   

While state EITCs are undoubtedly good policy, there is still room for improving existing credits. Three states (Delaware, Ohio and Virginia) have EITCs but only allow them as nonrefundable credits–a limitation which restricts their reach to those state’s lowest-income families and fails to offset the high share of sales and excise taxes they pay. Lawmakers in Delaware seem to have recognized this shortcoming by recently introducing a bill that would make the state’s EITC refundable, but only after reducing the percentage from 20 to 6 percent of the federal credit and then gradually phasing it back up to 15 percent over the course of a decade.  Advocates in Virginia are calling for a strengthening of the state's EITC as an alternative to untargeted tax cuts proposed by Gov. Terry McAuliffe. 

In addition to refundability, many states are discussing an increase in the size of their credit. Governors, in particular, are stepping up to the plate: Rhode Island Gov. Gina Raimondo recently announced her plan to raise the state’s EITC to 15 percent, up from 12.5 percent of the federal credit; Louisiana Gov. John Bel Edwards, meanwhile, has called for doubling the state EITC as part of his commitment to reduce poverty; and Maryland’s governor, Larry Hogan, called to accelerate the state’s planned EITC increase. In California, Gov. Jerry Brown reiterated his support for the state’s new EITC in his 2016-17 budget. In New York, Assembly Speaker Carl Heastie proposed increasing the EITC by 5 percentage points over two years. And Oregon lawmakers are calling to bring the EITC up to 18 percent of the federal credit.   

Another “enhancement” trend that is building momentum is expanding the EITC to workers without children. At the federal level, President Obama proposed just that (PDF) in 2014 and again reiterated his support for such a change in his most recent State of the Union address and budget proposal. Just last year, the District of Columbia expanded its EITC for childless workers to 100 percent of the federal credit, up from 40 percent, and increased income eligibility.   

Protecting state EITCs:  

Rather than focusing on proactive anti-poverty strategies, a handful of states will be spending the better part of 2016 protecting their state EITCs from the chopping block. Tax reform debates in Oklahoma have led to calls that the state’s EITC should be re-examined and possibly eliminated, possibly in combination with the elimination of the state's low-income sales tax relief and child care tax credit.  

For more information on the EITC, read our recently released brief that explains how the EITC works at both the federal and state levels and highlights what state policymakers can do to continue to build upon the effectiveness of this anti-poverty tax credit. 

 


State Rundown 2/9: State Coffers Bare


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Today we are taking a look at several states that are dealing with budget shortfalls. Despite shortfalls, governors in Arizona and Kentucky are calling for tax cuts. Newly elected Louisiana Gov. Edwards is taking a different approach and calling a special session next week to talk about tax increases. Meanwhile the sad saga of Kansas continues as lawmakers grapple with revenues that again fell short of monthly projections.
Thanks for reading. 
-- Meg Wiehe, ITEP's State Tax Policy Director

 


 

Years of tax cuts have left Arizona low on cash, despite state officials' protestations to the contrary. While lawmakers point to lingering effects of the Great Recession to explain sluggish revenue collections, economists at Arizona State University blame over 20 years of tax cuts, which have reduced the 2016 general fund by $4 billion. Revenues will continue to decline as corporate tax cuts are phased in through 2019, but no matter -- Gov. Doug Ducey affirmed his commitment to cutting taxes further in his State of the State address (while somehow also promising increases in education spending).

Advocates in Kentucky say years of budget cuts show that the state needs more revenue. Under former Gov. Steve Beshear, the state cut spending by $1.5 billion. Gov. Matt Bevin has proposed $650 million in additional cuts under his latest budget. Recently, a coalition of 20 groups called on lawmakers to consider raising revenue instead of enacting more cuts. Using data from our state partners at the Kentucky Center for Economic Policy (KCEP), the Kentucky Together coalition advocates for eliminating tax breaks for corporations and wealthy property owners as well as broadening the sales tax base to include services. The KCEP report (PDF) cites ITEP data showing that state and local taxes hit middle-income families hardest (10.8 percent of family income) and are relatively light on the top one percent of Kentucky earners (6 percent of family income).

The sad saga of Gov. Sam Brownback continues for Kansas. The governor and his revenue officials continue to make the case that relying heavily on consumption taxes will provide "more stability" for state revenues despite mounting evidence to the contrary. In January, sales tax receipts were $3.9 million under expectations, and since July have come in as much as $10 million under monthly projections. Brownback and lawmakers increased the sales tax rate last June in an effort to pay for the governor's costly income tax cuts. Revenue Secretary Nick Jordan insists that the short-term data are an aberration, and that the sales tax is more reliable than the income tax "over a 5-10 year trend." Conveniently, Jordan won't be around then to see if his prediction was correct. And despite the assertions of Art Laffer and Stephen Moore, the Kansas economy doesn't prove the wisdom of Brownback's "experiment." As Yael Abouhalkah of The Kansas City Star notes, those economists have failed to acknowledge the consumption tax hikes, budget cuts and highway trust fund raids made necessary by the state's recent tax cuts.

At the request of new Gov. John Bel Edwards, Louisiana will hold a special session beginning next Monday to deal with its budget crisis. The session is limited to considering bills that would increase taxes, rollback tax cuts and incentives, or cut spending in an effort to balance the budget. However, it will be up to the legislature to decide if a bill meets the parameters established by the governor. One piece of legislation expected to be considered is a repeal of the SAVE higher education act, a bill passed by Louisiana lawmakers at the behest of former Gov. Bobby Jindal. The convoluted law created a fake tax credit to cover for a tax increase so that Jindal could pretend to keep his no-taxes pledge.

State of the State Addresses This Week:
Louisiana Gov. John Bel Edwards -- Friday, Feb. 12
Pennsylvania Gov. Tom Wolf -- Tuesday, Feb. 9 (watch here)
Wyoming Gov. Matt Mead -- Monday, Feb. 8 (watch here)

 

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.orgClick here to sign up to receive the Rundown in via email


2016 State Tax Policy Trends: States Considering Raising Revenue in Both Big and Small Ways


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This is the third installment of our six part series on 2016 state tax trends.

Significant revenue shortfalls and the desire to increase funding for public education and other public investments are spurring lawmakers in more than 16 states to consider revenue raising measures both big and small this year.  The need to raise a significant amount of revenue, due either to dips in oil and gas tax revenue or ongoing budget impasses, will provide an opportunity to overhaul upside-down and inadequate tax systems with reform-minded solutions.

A new report from the Rockefeller Institute (PDF) quantified what we all instinctively already know--states with a heavy dependence on revenue from natural resources suffer when oil and gas tax prices tumble.  Revenues dropped by 3.2 percent between September 2014 and 2015 in Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia and Wyoming while the other 42 states experienced a combined growth in revenues of more than 6 percent. So, it should be no surprise that some of the biggest revenue challenges in the country are found in these energy dependent states, many of which shortsightedly reduced or even eliminated reliance on broad-based taxes during their "boom" years.  Of this group, Alaska and Louisiana are of particular interest as both states will explore transformative changes to their tax systems.

More than seven months into the current fiscal year, Illinois and Pennsylvania are still working without budgets, or much needed new revenue, in place. We will be watching both states closely this year for proposals that will finally help to break the stalemates.  And, many other states including Connecticut, and Vermont have lingering revenue problems leftover from the recession that will require lawmakers to take a hard look at their state tax systems to avoid yet more spending cuts. 

On a brighter note, not all of the anticipated revenue raising in the states this year will happen in response to revenue crises.  There are a number of efforts across the country to raise new revenue for much needed investments in public education, health care and transportation.  Voters in California, Maine, and Oregon will be asked to support higher taxes on the wealthy or corporations at the ballot in November and a similar effort could make it onto the ballot in Massachusetts in 2018.  Lawmakers in New York and Utah have filed bills to increase taxes on their states' wealthiest residents to allow for more revenue for public investments.  Even South Dakota is considering raising revenue--lawmakers from both parties want to increase the state's sales tax in order to pay for teacher salary increases (a regressive choice, but one of the few options available in a state that does not have a personal income tax). 

Here's a list of states we are watching in 2016:

Alaska

Alaska sticks out like a sore thumb compared to all of the other states with natural resource dependent economies experiencing revenue shortfalls.  The state has no personal income tax or sales tax to turn to in times of crisis and more than 90 percent of state investments are funded via taxes on the energy sector.  (Alaska is the only state to ever repeal a personal income tax and has been without one for 35 years.)  Thus, there are few options short of drastic measures to plug a growing budget gap of more than $3.5 billion.

Gov. Bill Walker proposed a plan in December that would, among other things, institute an income tax equal to 6 percent of the amount that Alaskans pay in federal income taxes and cut the annual dividend paid out to every Alaska resident.  Other lawmakers have discussed enacting a state sales tax.  No matter the outcome of the debate in the Last Frontier State this year, one things is for certain -- lawmakers in other states that are interested in cutting or eliminating their personal income taxes must now think twice before holding up Alaska as a model for what they would like to achieve.

California

Back in 2012, California voters soundly approved a ballot measure, Proposition 30, that raised more than $6 billion in temporary revenue via a small hike in the sales tax and higher taxes on the state's wealthiest residents.  The revenue raised from the measure helped get the Golden State back on its feet following the Great Recession and has allowed lawmakers to make much needed investments in education and health care.  Now there is an effort afoot to place a new question on the ballot this coming November to extend the income tax changes (higher brackets and rates on upper-income households) through 2030 with the revenue going largely towards expanding and sustaining investments in public education.

Illinois

More than seven months into the fiscal year, Illinois continues to operate without a budget in place because Gov. Bruce Rauner and state lawmakers are still battling over the best way to address the state's massive $6 billion revenue shortfall.  Revenues are short largely due to a 25% income tax cut that took effect the beginning of 2015, leaving the state on even rockier fiscal ground. Democrats have proposed some tax increases, but the governor says he will not consider revenue raising proposals until lawmakers agree to his so-called "pro-business" reforms. 

Louisiana

Louisiana faces a current year shortfall of $750 million as well as a $1.9 billion hole next year thanks to anemic oil and gas revenues and the nearsighted tax policies (all cuts and no investments) of former Gov. Bobby Jindal.  Lawmakers will get to work post- Mardi Gras celebrations on a plan to address the state's immediate and long-term revenue problems.

The state's new leader, Gov. Jon Bel Edwards has proposed a number of revenue raising options including much needed reforms to the state's personal and corporate income tax.  But, given that most reform options would take time to implement and that the state has an immediate need for cash to plug the current year gap, he is starting with a call for a one cent increase in the state sales tax (an approach the governor has conceded is less than ideal).  Gov. Edwards'  more long-term solutions to Louisiana's structural budget problems come with a focus on the income tax -- specifically calling for the elimination of the federal income tax deduction as a reform-minded idea that would raise much needed revenue and improve tax fairness. 

Maine voters will likely have the opportunity in November to approve a ballot measure that would raise more than $150 million in dedicated revenue for the state's public schools. Under the initiative, taxpayers with $200,000 or more in income would pay a 3 percent surcharge on income above that amount.  The campaign behind the measure, Stand Up for Students, has collected well above the threshold of needed signatures to qualify for the ballot, but the question along with others must still be certified by the state.

Massachusetts

The Raise Up Massachusetts coalition is behind an effort to create a millionaires tax, dubbed the "fair share amendment", in the Bay State.  Due to the lengthy ballot process involved, the question will not go before voters until 2018, but the campaign is already in high gear. They have collected the needed signatures to move forward and last month the initiative won overwhelming approval from the Legislature's Committee on Revenue.  If approved by voters in 2018, taxpayers with incomes over $1 million would pay an additional 4 percent on that income on top of the state's flat 5.1 percent income tax.

New Mexico

Gov. Susana Martinez continues to stand by her no-new-taxes pledge despite a growing revenue problem in her state, but that has not stopped other lawmakers from filing bills to increase taxes. Proposals have been introduced to delay the implementation of corporate income tax cuts enacted in 2013, raise gas taxes, and increase personal income tax rates.

New York

The New York Assembly unveiled  a proposal to raise taxes on millionaires and cut taxes for working families. Under the proposal, individuals earning between $1 million and $5 million would pay a tax rate of 8.82 percent on that income. Income between $5 million and $10 million would be taxed at 9.32 percent, and income over $10 million would be taxed at 9.82 percent. If enacted, the tax plan would raise $1.7 billion in revenue to increase spending on public education, and infrastructure projects . The plan also includes tax cuts for New Yorkers earning between $40,000 to $150,000 and an increase the state's Earned Income Tax Credit, a tax break targeted to low-income working families.

Oklahoma

Gov. Mary Fallin recently unveiled a revenue raising package relying heavily on regressive cigarette and sales tax increases to plug the state's more than $900 million shortfall.  The governor deserves some kudos for recognizing her state's revenue problem needs a revenue-backed solution.  However, it should be noted that the state has cut the personal income tax by more than $1 billion since 2004, including a more than $140 million cut that went into effect at the start of the year despite the state's revenue woes. Other than a proposal to eliminate a truly nonsensical income tax deduction, her plan mostly ignores income tax options.  Raising significant new revenue from sales and cigarette taxes will continue to shift more of the state's tax reliance onto low- and moderate-income Sooner taxpayers, especially if some lawmakers succeed in their wish to eliminate the state's 5 percent Earned Income Tax Credit.  Without this targeted tax break for low-income working families, the kinds of revenue raisers being discussed would certainly exacerbate tax inequality in the state.   

Oregon

An Oregon ballot initiative, sponsored by Our Oregon, would create an additional minimum tax on corporations with Oregon sales of at least $25 million (a 2.5 percent tax would apply to sales in excess of $25 million). If the initiative wins approval, it would raise close to $3 billion annually in new revenue for public education and senior health care programs. Currently, corporations doing business in Oregon pay the greater of a minimum tax based on relative Oregon sales or a corporate income tax rate of 6.6 percent on income up to $1 million and 7.6 percent on income thereafter.

Pennsylvania

Pennsylvania government continues to operate more than 7 months into this fiscal year without a budget (there is an emergency funding budget in place that is more than $5 billion less than the proposed budget).  Yet, Gov. Tom Wolf is expected to propose a budget for next fiscal year on February 9th.  An ongoing disagreement on revenue raising measures and spending priorities between the governor and House and Senate lawmakers explain the hold up and several compromise budget and tax plans last summer and fall failed to gather enough support to break the impasse.  The situation is reaching crisis stage as the state now faces a $2.6 billion structural revenue gap and cannot continue to operate much longer on emergency funding if there are no longer enough revenues coming in to fund core government services.  Gov. Wolf is likely to try yet again to solve the problem with a balanced revenue proposal including income and sales tax increases and a new severance tax. 

South Dakota

South Dakota lawmakers led by Gov. Dennis Daugaard are proposing a 0.5 cent increase in the state's sales tax that will raise more than $100 million annually.  Most of the revenue will be used to increase teachers' salaries, a long sought after policy goal in a state that ranks 51st in teacher pay.  Democrats are proposing a similar measure, but their plan would first remove food from the state's sales tax base and then raise the rate by a full cent.  While both measures fall more heavily on low-income households, the Democrats' proposal is slightly less unfair (although it raises more revenue) since taxes on food hit low-income households especially hard.  South Dakota is one of nine states without a broad-based personal income tax, so their options for a more progressive tax increase are limited.

Utah

Utah Sen. Jim Dabakis has proposed adding two new brackets with higher rates to his state's flat income tax to raise revenue for public education.  Taxpayers with income greater than $250,000 would pay more under his plan.  Dabakis argues that the state's flat tax is a "disaster" and is largely to blame for the underfunding of K-12 schools.

West Virginia

Just a few short months ago, we were watching West Virginia for a large-scale tax reform package that would have likely reduced reliance on the state's personal income tax.  But now that the state faces a revenue shortfall of more than $350 million this year (and more than $460 million next year), attention has turned to options for filling the gap.  As in Louisiana, past tax cuts are as much to blame for the state's revenue woes as the hit to the state's coal industry.

Gov. Earl Ray Tomblin's budget proposal included higher taxes on tobacco and adding cell phone plans to the state's 6 percent sales tax that together would raise around $140 million when fully implemented.

Other States to Watch: While governors in Vermont and Connecticut have said no to raising taxes to address budget gaps, lawmakers in those states are likely to challenge those sentiments and propose reform-minded tax increases that ask the wealthiest residents in their states to pay more. And Iowa lawmakers are considering a series of bills to increase the state's sales tax to pay for everything from school construction to water quality projects and transportation infrastructure. 


What to Watch for in 2016 State Tax Policy: Part 1


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State legislative sessions are about to begin in earnest.We expect tax policies to get major playin statehouses across the nation this year with many states facing revenue surpluses for the first time in years and others having to grapple with closing significant deficits. Regardless, officials should focus on policies that create fairer, more sustainable state tax systems and avoid policies that undermine public investments.

ITEP this year once again will be taking a hard, analytic look at tax policy proposals and legislation in the states. This is the first in a six-part blog series providing analyses on the implications of policy proposals, as well as thoughtful commentary on best policy practices.

 Part 2: Revenue Surpluses May Prompt Tax Cut Proposals

In some states, economies have recovered well since the economic downturn, and lawmakers are considering spending surpluses on tax cuts instead of providing much-needed boosts to public investments that were scaled back during the recession. The economic recovery has been uneven, however, and some states that find their economies still struggling or newly sputtering may consider tax cuts on high-income residents under the misguided premise that tax cuts at the top trickle-down and stimulate economic growth.

One trend we expect to see is tax cuts that take effect in small increments over a very long period based on revenue performance or some other automatic "trigger." The effect of these incremental cuts is to push the brunt of revenue losses into the future. Another trend is to move toward single-rate income taxes, negating the chief advantage of the income tax: its ability to reduce tax unfairness by requiring people with higher incomes to pay higher rates and those with less income to pay lower rates. Keep an eye in 2016 on Georgia where there is a proposal to cut and flatten the income tax and then further reduce it in future years based on automatic triggers.

Part 3: Revenue Shortfalls Create Opportunities for Meaningful Tax Reform

A number of states including Alaska, Connecticut, Delaware, New Mexico, Vermont, West Virginia, and Wyoming are grappling with current and future year revenue shortfalls. Pressed for revenue, we anticipate that some states may turn largely to spending cuts or more regressive and less sustainable tax options (like a small hike in the cigarette tax) to close their budget gaps. The scale of the problem in many of these states could also present a real opportunity for lawmakers to debate and enact reform-minded tax proposals that could raise needed revenue, improve tax fairness, and craft more sustainable state tax systems for the future. 

The most significant revenue downturns and best opportunities for reform are in states dependent on oil and gas tax revenue, most notably Alaska and Louisiana. Alaska Governor Bill Walker unveiled a proposal in December that would among other things bring back a personal income tax. Louisiana's new governor, John Bel Edwards, will call a special session next month to pitch short- and long-term revenue raising ideas, including much-needed reforms to the state's income tax. We are also watching Illinois and Pennsylvania where lawmakers are now more than seven months overdue on putting together a budget for the current fiscal year, largely over disagreements on how to find needed revenue to pay for public investments.

Part 4: Tax Shifts in All Shapes and Sizes

Tax shifts, which reduce or eliminate reliance on one tax and replace it with another source, are one bad policy idea we expect to continue to rear its ugly head. The most common tax shifts in recent years have sought to eliminate personal and corporate income taxes and make up the lost revenue with an expanded sales tax. Such proposals result in a dramatic reduction in taxes for the wealthy while hiking them on low- and middle-income households, increasing the unfairness of state tax systems and exacerbating already growing income inequality.

Lawmakers in Mississippi  and Arizona  have expressed support for lowering and eliminating income taxes. Changing political and revenue pictures in both of these states could lead to lawmakers finally making good on their promises in 2016. Also watch for smaller scale shifts like a plan in New Jersey where lawmakers want to pair a much needed increase in the state’s gas tax with an elimination of the estate tax to “offset” the tax hike.

 Part 5: Addressing Poverty and Inequality Through Tax Breaks for Working Families

In 2016, we expect states to focus on a range of policies to support working families, building off the momentum of their 2015 reforms and national dialogue on poverty and income inequality. In particular, developments to enact or improve state Earned Income Tax Credits (EITCs) are likely in a dozen states across the country. For instance, Louisiana’s new governor John Bel Edwards called for doubling the state EITC as part of his commitment to reduce poverty. Maryland’s governor, Larry Hogan, called to accelerate the planned EITC increase. Delaware lawmakers are looking to take a step forward by making the state’s EITC refundable, but unfortunately are also considering a drop in the percentage of the credit.

Tax breaks for working families may also appear as proposals to provide targeted cuts to offset regressive tax increases in states where lawmakers plan to raise revenue. We suggest also keeping an eye on working family tax break proposals in the following states: California, Georgia, Illinois, Minnesota, Mississippi, Missouri, Oregon, Rhode Island, Utah, Virginia, and West Virginia.

Part 6: Overdue Increases in Transportation Funding

The recent momentum toward improvements in funding for transportation infrastructure is likely to continue in 2016. Governors in states such as Alabama, California, and Missouri have voiced support for gasoline tax increases, and gas taxes seem to be on the table in Indiana and Louisiana as well. These discussions on a vital source of funding for infrastructure improvements are long-overdue, as many of these states haven’t updated their gas taxes for decades

But not all transportation funding ideas being discussed are worth celebrating. Arkansas Gov. Asa Hutchinson, for example, has proposed that additional infrastructure funding come from diverting significant revenues away from education, health care, and other services. Meanwhile, lawmakers in other states (Mississippi, New Jersey, and South Carolina) would like to leverage a gas tax increase to slash income or estate taxes for high-income households. While these plans would result in more funding for transportation, their overall effect would be to worsen the unfairness and unsustainability of these states' tax codes.


Incoming Louisiana Governor Faces Budget Test


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By now, the budget crisis in Louisiana is the stuff of legend. Driven by former Gov. Bobby Jindal's nearsighted tax policies (all cuts and no investments) and exacerbated by anemic oil and gas revenues, the state faces a $750 million shortfall in the current fiscal year as well as a $1.9 billion shortfall for the fiscal year starting in July.

The test facing new Gov. John Bel Edwards will be to balance the need for new revenue with the need to support the ordinary Louisianans who were left out in the cold by the Jindal administration. This week, Edwards proposed increasing taxes and tapping state reserve funds to stave off the largest deficit in state history. He is expected to call a special session in mid-February to float, and hopefully gain support, for his tax plan.

The governor has proposed closing the current year gap with a one cent increase in the state sales tax, bringing the rate to 5 percent. Groceries, prescription drugs, and residential utilities would not be subjected to the sales tax increase. The sales tax increase would raise revenue by $216 million between now and late June (and raise more than $800 million over a full year). Edwards would also transfer $128 million from the states rainy day fund and another $200 million from an oil spill cleanup fund to the state's general fund. Altogether, these moves would raise revenue by $544 million -- not enough to cover the $750 million shortfall.

Gov. Edwards also proposed some long-term solutions to Louisiana's structural budget problems, brought about by overreliance on one-time money, rolling back tax increases put in place more than a decade ago, and other gimmicks. He supports increasing  income taxes, specifically singling out the federal income tax deduction as a reform-minded idea that would raise much needed revenue.  An ITEP analysis found that eliminating the ability for Louisiana taxpayers to deduct their federal income taxes from state returns (only 5 other states allow this practice) would raise around $1 billion with more than 80 percent of the increase being paid by the wealthiest 20 percent of taxpayers. Edwards suggested he would also be open to lowering corporate and individual income tax rates if conjunction with the deduction repeal.

While the governor acknowledged that a sales tax increase -- a regressive measure -- is not an ideal solution to the crisis, his officials note that only a sales tax increase would offer a secure revenue stream to make up the shortfall this fiscal year. Budget officials also acknowledge that the governor's proposals are a menu of options for legislators, given the need to get approval from his opponents in the statehouse. Lawmakers have signaled a willingness to consider tax increases given the dire circumstances, including an effort to examine the use of tax breaks in the state.

One proposal that the governor suggested in December that should still be on the table is his pledge to double the state's EITC as part of an anti-poverty agenda. While perhaps a hard sell given the state's deficit, putting more money into the pockets of working families would support the state's economy, help lift more families out of poverty, and help offset the impact of a likely sales tax hike. 

 


State Rundown 1/7: New Year, New Taxes


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The revenue crisis in Louisiana is worse than anticipated, according to Gov.-elect John Bel Edwards. The state is short $750 million this fiscal year, which must be accounted for by the end of June. Next fiscal year, which starts in July, will put the state $1.9 billion further in the hole. Edwards has said he will unveil a “menu of options” to address the shortfall in advance of a special session he plans to call next month.  He will likely ask lawmakers to consider revenue raising measures to help soften the impact of spending cuts in the current year and to boost available revenue for next year’s budget (which will get sorted out in March). 

A tax cut for the middle class took effect on January 1 in Arkansas. Gov. Asa Hutchinson won approval last year of a 1 percent cut in the income tax rate for those making between $21,000 and $75,000, at a cost of $135.7 million over the biennium. Hutchinson sees the cut as the first step toward a broader income tax reduction, but he has no plans to propose new cuts before the 2017 legislative session. But some lawmakers and advocates warn that the income tax cuts will lead to further cuts in state services such as the state’s severely underfunded preschool and child welfare programs. "That's just a huge amount to come out of the budget and we're seeing a lot of current unmet needs in Arkansas," noted Ellie Wheeler of Arkansas Advocates for Children and Families.

Pennsylvania officials still haven’t reached an agreement on their state’s budget (now almost seven months past due), but that hasn’t stopped them from approving the funding of tax breaks for corporations. Gov. Tom Wolf conditionally approved several requests for tax credits from businesses, including breaks for donations to private schools, film tax credits and credits for research and development.  Apparently, this represents a reversal for the governor, who said last Tuesday that emergency funds recently made available for school districts and social services would not be used to fund tax credit programs. The state government approved 3,000 requests for the education tax credit, up from 2,700 last year. Businesses can take a 75 percent credit on their donations (up to $750,000) to organizations that provide scholarships to low-income students to attend private schools.

Utah Gov. Gary Herbert wants his state’s legislature to reconsider its earmarking practices, saying that automatically directing new revenues to specific purposes can reduce flexibility in funding state priorities. Herbert specifically argued that money earmarked for transportation could be better spent on educational priorities. "We're coming to a point where there's a crossroads decision, because if we don't reduce some of the earmarks, we will have a difficult time funding education, particularly higher education,” noted the governor. Some lawmakers have also argued that the automatic earmarking practices prevent the state from regularly reviewing if funds are being spent efficiently.

Snack lovers in Maine will pay a little more at the register this year. Since Jan. 1, a number of products including marshmallow fluff and beef jerky were added to the sales tax base. The sales tax base expansion was one element of the tax reform package passed by the legislature last summer which also included a permanent hike in the sales tax rate, significant changes to the state’s personal income tax, and the introduction of a refundable sales tax credit. 


State Rundown 12/22: Looking Ahead to 2016


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As the year comes to a close, several tax bills are already being debated in states across the country. ITEP is closely following those proposals because they will likely dominate state headlines in 2016. In the new year we will write more about state tax policy trends for 2016, but in the meantime, here are some of the big state tax policy developments happening now:

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There are bright signs on the horizon in Alaska. Gov. Bill Walker recently proposed a progressive income tax to address the state’s budget implosion, brought on by declining oil and gas revenues. Alaska has not had a personal income tax since 1980, when massive oil deposits were discovered on state land. Walker’s proposal would set the state income tax at six percent of what Alaskans pay in federal income taxes. The governor would also raise the state’s gasoline tax, which has not increased in 45 years. To learn more, check out this post on the Tax Justice Blog.

Florida Gov. Rick Scott will continue to push his $1 billion hodge-podge of tax cuts, though even legislators from his side of the aisle balk at the price. The package includes sales tax holidays for back-to-school shopping and hurricane preparedness and a tax break for college students’ textbooks. But those measures are mere leaves for the massive corporate tax cuts at the core of the proposal: corporate income tax cuts worth $770 million annually and a sales tax break on commercial rents that will cost $339 million over the biennium. House Speaker Steve Crisafulli says the governor’s plan may not be possible in its entirety. The state will post a one-time surplus of $635 million next year, but much of that money will go to support public education. Furthermore, a one-time cash infusion won’t pay for tax cuts that recur year after year.

Louisiana Gov.-elect John Bel Edwards will push to double the state’s EITC as part of his plan to reduce poverty in the state. As we outlined in a previous blog post, the move by Edwards is one of a number of encouraging signs for tax justice advocates. The governor-elect also appointed a moderate Republican, former Lt. Gov. Jay Dardenne, to be the state’s budget chief. Dardenne could have the skills to get a revenue-raising tax reform through the legislature since he was able to do so in the early 2000s. Louisiana faces a $1 billion deficit next fiscal year.

Mississippi lawmakers are set to push for tax cuts again next year after a failed attempt to pare back and even eliminate the personal income and corporate franchise taxes in 2015. While the Mississippi Economic Council for Transportation is calling on lawmakers to raise close to $400 million through the gas tax to pay for a long list of transportation infrastructure projects, Gov. Phil Bryant has said “any tax increase must be offset by corresponding tax cuts."  Given the nature of the tax cuts proposed last year, such a plan would likely result in a significant tax reduction for the state’s wealthiest residents and a hike on low- and moderate-income working families.

Virginia Gov. Terry McAuliffe’s budget proposal unveiled this month includes corporate and personal income tax cuts.  The governor wants to cut the state’s corporate income tax rate from 6 percent to 5.75 percent. The proposal would cost $64 million in state revenues. McAuliffe claims that these changes are necessary to compete with neighboring North Carolina, which has repeatedly slashed its corporate tax rate in recent years. But an analysis by The Commonwealth Institute says these claims are false. They point out that two-thirds of Virginia corporations pay no income tax despite record profits, and that the governor’s proposed tax break would help a few large companies while providing no benefits for small businesses and families. They also note that recent history does not provide much reason to be optimistic about the Governor’s plan: a 2009 tax break for manufacturers, for example, failed to spur job growth in that sector. The governor also wants to cut the personal income tax through slightly increasing the size of the personal and dependent exemptions.  Such a proposal will only cut taxes by a little more than $20 million a year and ITEP found that more than a quarter of taxpayers, primarily low- and moderate-income working families, will see no benefit from the proposal. 

 


Hope in Louisiana?


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Louisiana Governor-elect John Bel Edwards may be a breath of fresh air for tax justice advocatesin Louisiana this upcoming legislative session.

Gov. Bobby Jindal prioritized policies aligned with his no new taxes pledge rather than meeting the needs of Louisianans. The outgoing governor even introduced a losing proposal that would have eliminated the state’s income tax and replaced the revenue with a broader sales tax.

But hope springs eternal for fundamental and thoughtful tax reform as way to help close the state’s projected budget gap of $370 million for the current fiscal year and a more than $1 billion budget gap for next year. The optimism for revenue raising tax reform is possible thanks to the Gov. Elect’s appointment of former Republican Lt. Gov. Jay Dardenne as the state’s commissioner of administration  (a position that is equivalent to chief budget officer). Dardenne was the architect of revenue-raising tax reform enacted but later repealed) in the early 2000s. That package lowered sales taxes and increased the state’s reliance on income taxes.  

Another bright spot--last week the governor-elect called for doubling the state EITC as part of his commitment to reduce poverty in the Pelican State. We’ll be closely following the tax debate in Louisiana in the new year.


State Rundown 11/20: Incentives, Deficits and Unexpected Windfalls


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Oklahoma officials want an independent review of business incentives that cost the state more than $355 million each year. A new law that took effect at the beginning of this month established an Incentive Evaluation Commission charged with looking at tax credits, deductions, expenditures, rebates, grants and loans intended to promote business relocation and expansion. Under the law, each business incentive will be reviewed every four years. Currently, just two incentives – the Investment/New Jobs Tax Credit and the Quality Jobs Program – account for over $180 million in lost revenue for the state, and have failed to meet rosy job creation projections. State Auditor Inspector Gary Jones is cautiously optimistic about the independent review process, saying, “Some of these things ought to be eliminated….The problem is, you’re leaving so much to people whose jobs depend on campaign contributions.”

Gov. Bobby Jindal, who recently abandoned his bid for the presidency, returns to a state in budget turmoil. Louisiana’s budget officials predict the state faces a deficit of $370 million after downgrading their projections for 2015-2016 fiscal year revenue. The shortfall is due to freefalling oil and gas prices as well as anemic business tax collections. The state must also contend with a $117 million deficit from last fiscal year that has yet to be addressed. This mid-year deficit is the eighth time in Jindal’s eight years in office that revenue has come in under projections. There will likely be cuts to critical services. Both of the candidates vying to replace Jindal have said they will call a special session in 2016 to deal with the budget and revenue crisis.

Improved budget numbers in South Carolina have caused some officials to question whether the state needs to raise its gasoline excise tax – last increased over 26 years ago. Forecasters say the state will see an additional $1.2 billion next year in unallocated money and new tax revenues. State Sen. Tom Davis says that rather than increase the gas tax, road repairs should be funded with this unexpected revenue.  Of course, funding long-term infrastructure projects with what appears to be a one-time windfall will create sustainability problems down the road.  In the last session, Haley attempted to use the push for a gas tax increase as an opportunity to enact a significant income tax cut for high-income households. A similar “tax shift” will likely be on the table once again during the upcoming session.


State Rundown 10/30: Spooky Appointments, Phantom Tax Increases


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New Jersey Gov. Chris Christie, clearly not a regular reader of this blog, nominated Art Laffer acolyte Ford Scudder to be state treasurer. Scudder is chief operating officer of Laffer Associates and an analyst at Laffer Investments. If appointed to the position, Scudder would be responsible for crafting the state budget and overseeing state investments, pensions and benefits, state debts and lottery revenue. Senate President Stephen Sweeney was not impressed by the governor’s move: "The so-called Laffer curve came to embody the trickle-down economic policies that were discredited because they favored the wealthy at the expense of everyone else. New Jersey is not the place to reintroduce the policies that caused so much lasting damage to the economy.” This is not the first time a Laffer associate has served in state government. Donna Arduin, a partner in Laffer’s consulting firm, recently left a high-profile position in Illinois (which remains mired in a budget standoff) and Laffer himself was a prominent architect of Sam Brownback’s failed tax experiment.

Louisiana voters decided on four constitutional amendments with implications for the state’s fiscal health this past weekend. Voters rejected Amendment 1, a proposal to weaken the state’s rainy day fund to benefit transportation projects, and Amendment 3, which would have loosened the rules around which bills could be offered during the fiscal legislative sessions held in odd-numbered years. Voters approved Amendment 2, a proposal that gives the state treasurer the option of investing funds in the state infrastructure bank, by a slim margin. The infrastructure bank allows local governments to borrow money at favorable rates for infrastructure projects. Voters also approved Amendment 4, which allows local governments to collect property taxes on properties owned by state and local governments outside of Louisiana.

A Maryland environmental group is challenging one jurisdiction’s plan to phase out a stormwater fee – also derided as a “rain tax” – without first spelling out an alternative way of paying for required environmental projects. The Chesapeake Bay Foundation argues that Baltimore County, which plans to eliminate the stormwater fee over two years, must first specify how it will pay for state-mandated projects designed to reduce water pollution. In 2012, the state legislature required urban and suburban districts to collect the stormwater fees to reduce runoff; under newly-elected Gov. Larry Hogan, the law was revised to allow jurisdictions to drop the fee if they dedicate another source of money to the required projects.

A bill that will fix an unintended feature of a recently-enacted tax cut passed the Ohio legislature this week and will now go to Gov. Kasich for his signature. In June, lawmakers passed a tax cut that allows business owners to deduct up to 75 percent of their first $250,000 in business income this tax year, and 100 percent of that amount in 2016. Any income in excess of $250,000 would then be subject to a flat tax of 3 percent in both years. However, as the law was originally enacted, the 2015 exemption only covered 75 percent of the first $250,000 and the other 25 percent (as well as any income over $250,000) would have been subject to a 3 percent flat tax.  For some taxpayers, this would have resulted in a tax increase since the state’s current graduated income tax system includes rates as low as 0.528% on low levels of income. Essentially, the tax cut included an accidental tax increase. The recently passed measure fixes the oversight, though it’s worth noting Ohio would have avoided $81 million in revenue losses next fiscal year if no correction was made. 


Louisiana Voters Protect State Rainy Day Fund


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Good news out of Louisiana this week. Voters defeated Amendment 1, one of four constitutional amendments on the Oct. 24 statewide primary ballot. The proposal would have put a $500 million dollar cap on the state’s Rainy Day Fund, the savings account the state relies on in the event of an unexpected drop in revenues. The amendment would have also created a transportation fund to capture any mineral revenue coming in above the new cap.

Steve Spires of the Louisiana Budget Project sums up the situation in his recent post:

“The goal of this amendment is laudable: to address Louisiana’s chronic backlog of transportation needs. Unfortunately, it would do so by weakening the state’s rainy-day savings account, which would hurt the state’s ability to react to future financial downturns and put vital state services at risk for damaging cuts.”

Even without the amendment, the fund is already subject to strict rules such as the condition that the legislature can only use one-third of its contents in any given year. A $500 million dollar cap would have limited rainy day fund infusions to just $167 million per year. In the context of Louisiana’s roughly $8 billion budget, Amendment 1 would have rendered the fund unable to cover anything beyond a 2.1 percent decline in revenues. This would have been an inadequate cushion to protect Louisiana residents from cuts to critical public services during the next economic downturn.

Size restrictions on rainy day funds limit states’ ability to grow reserves in line with their budgets. In our Primer on State Rainy Day Funds, ITEP warns against such overly restrictive caps. Louisiana voters made the right call this week by forcing lawmakers to have a real discussion about road funding, rather than weakening the state’s rainy day fund as part of a deficient package that wouldn’t have solved the problem.


State Rundown 9/9: Spin, Opinions and Tax Cuts


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Louisiana voters will consider ballot initiatives next month regarding road and bridge funding. The first measure would steer tax revenues from oil and gas from the state’s rainy day fund to its transportation fund. If approved, $21 million would shift from the rainy day fund to the state highway system in each of the next five years, with up to $100 million annually shifted to transportation thereafter. The second measure would establish a state transportation infrastructure bank, which would use public funds to offer loans and credit to public and private transportation projects. Of course, Louisiana’s legislators could also address the state’s $12 billion backlog in infrastructure needs by raising the state gas tax, which hasn’t changed in over 25 years or kept pace with inflation.

Kansas Gov. Sam Brownback has changed his spin on the disastrous tax cuts he enacted two years ago, preferring now to focus on employment numbers instead of the promised revenue growth. When asked about his policies by a local reporter, Brownback replied, “The tax cuts were always designed around jobs and economic growth. Wasn’t designed around revenue for the state.” This, of course, is false – in 2012, Brownback and economist Art Laffer claimed tax cuts would increase revenue growth by 5 percent. And despite Brownback’s sunny job growth rhetoric, Kansas still lags the nation in that category. But what use are facts to a good story?

The Illinois budget might be a disaster at the moment, but one company will still get a tax cut. Amazon will receive a corporate tax credit for a new warehouse in Joliet, despite the fact that the corporate recruiting program was put on hold in June during the budget showdown. Economists have consistently questioned whether tax incentives matter to company relocation, and some Illinois legislators called for the decision to be reviewed. The state Department of Commerce and Economic Opportunity says the tax credits were awarded to Amazon to honor a commitment made before the suspension of the corporate recruiting program, though some question that logic. Rep. Jack Franks asked, “"I'm not sure why we would provide tax credits to a company that's already made a decision to come here. If they've already said they're doing this, what benefit is there to the state?"

Tax reform proposals from conservative legislators in Georgia would make life’s necessities more expensive, according to an editorial in The Atlanta Journal-Constitution. Columnist Jay Bookman, citing ITEP data, argues that conservative plans to cut the income tax and replace the lost revenue by increasing sales taxes and applying the sales tax to groceries would result in higher taxes for middle and low-income families and tax breaks for corporations and wealthy individuals. Bookman also notes that the move could have a negative impact on the state’s bond rating if revenues don’t materialize as expected, and that families at the bottom of the income scale have already lost purchasing power.

Another editorial in The Toledo Blade argues that Ohio workers fare worse than others across the country, thanks in part to the misguided policies of current Gov. John Kasich. The column cites ITEP data to show that, under the governor’s new tax plan, the top one percent of Ohio taxpayers will receive an average cut of $17,600 while the bottom 20 percent will pay more. During his tenure Kasich also eliminated the estate tax, which provided revenue for local aid. With less aid from the state, poorer cities have struggled to get by or have been forced to raise local taxes on their already cash-strapped residents. 

This is the second installment of our three part series on 2015 state tax trends.  The first article focused on tax shifts and tax cuts, and the final article will discuss transportation funding initiatives.

finishline.jpgJuly 1 marked the end of most states’ fiscal years, the traditional deadline for states to enact new spending plans and revenue changes. The 2015 legislative sessions delivered lots of tax policy changes, both big and small. Some states finished early or on time, while others straggled across the finish line after knockdown budget battles. Still others are not yet done racing, operating on continuing resolutions until an agreement is reached. As of now, four states still do not have spending plans in place for the fiscal year that started July 1 (Illinois, New Hampshire, North Carolina, and Pennsylvania.  Alabama has until October to reach a budget agreement).  

While every state’s tax system is regressive, some states chipped away at this problem by enacting new tax policies to support working families. Most commonly, states adopted or strengthened their Earned Income Tax Credits (EITCs). But a number of proposals to enact or improve tax credits for working families stalled, including bills in Mississippi, Louisiana and Nebraska. There is still a chance that Illinois could improve its state EITC before the end of its legislative session.

In addition to policies supporting working families, a number of states, facing deep budget deficits, discussed or enacted revenue-raising plans this year. These plans will also help the public by supporting crucial services.

Check out the detailed lists after the jump to see which states created new tax policies to support working families and which states increased taxes to raise needed revenue.

 

Wins for Working Families

California (Enacted): Lawmakers reached a deal with Gov. Jerry Brown, passing a $115.4 billion budget that includes a new EITC for working families. This new EITC is worth approximately $380 million and is expected to help 2 million Californians. 

Hawaii (Still Active): Assuming Gov. David Ige signs a bill approved by the state’s legislature, most low-income families receiving the state’s refundable food tax credit will see their credit grow somewhat starting in 2016.  The credit is designed to offset highly regressive sales taxes on food in a state that ITEP has ranked as having higher taxes on the poor than anywhere except Washington State.

Massachusetts (Enacted): Massachusetts lawmakers included an increase in the state’s refundable EITC from 15 to 23 percent of the federal credit in their final budget agreement.

New Jersey (Enacted): The legislature increased the state EITC to 30 percent of the federal credit after a surprise endorsement from Gov. Chris Christie. As New Jersey Policy Perspective notes, the increase will help more than 500,000 working families and boost the state economy: “It’s been estimated…that the EITC has a multiplier effect of 1.5 to 2 in local economies – in other words, every dollar of tax credit paid ends up generating $1.50 to $2 in local economic activity.”

Rhode Island (Enacted): As part of the budget deal, Rhode Island lawmakers approved an increase in the state’s refundable EITC from 10 to 12.5 percent of the federal credit. 

Maine (Enacted): The final budget package approved by lawmakers converted the state’s nonrefundable 5 percent EITC to a refundable credit and introduced a new refundable sales tax fairness rebate, which will help to offset the impact of higher sales tax rates also included with the budget.

New York (Enacted):  Gov. Andrew Cuomo, the Assembly, and the Senate all proposed separate versions of a refundable property tax credit this session – some more targeted than others.  In the closing days of the session, lawmakers agreed to a compromise credit that is a sliding scale percentage of homeowners’ STAR property tax exemption, with benefits targeted to low- and moderate-income homeowners.  The credit is unavailable to homeowners with income above $275,000, and those residing in New York City or other jurisdictions that do not comply with the state’s property tax cap.  Unfortunately, the final agreement did not include any support for renters.

 

Significant Revenue Raising:

Alabama (Still Active): Lawmakers left their regular legislative session without a budget—or a needed revenue raising plan—in place (their fiscal year starts Oct. 1, so they are working on borrowed time).  Gov. Robert Bentley proposed a $541 million revenue package earlier in the year, including a higher cigarette tax, higher sales taxes on car purchases, and enacting combined reporting under the corporate income tax.  Unable to reach agreement on which taxes to raise and by how much to raise them, lawmakers sent the governor a budget with no new revenues, which he swiftly vetoed.  Lawmakers reconvened briefly on July 13 to receive Gov. Bentley’s latest revenue raising proposal that would raise more than $300 million: eliminating a state deduction for social security payroll taxes (only taken by lawmakers), a 25-cent cigarette tax increase, and a few small business tax changes.  His proclamation also suggested lawmakers could consider a soda tax as an alternative to eliminating the payroll deduction.  Lawmakers are expected to review the revenue changes over the next three weeks and will meet again on August 3 to vote on the proposal.

Connecticut (Partially Enacted): Connecticut lawmakers passed a budget with more than $1 billion in new revenue to plug a budget gap and ensure the state has resources to make needed investments in education, transportation, and health care.  In late June, lawmakers were called back to the capital for a special session after Gov. Dannel Malloy caved to the behest of corporate lobbyists. At issue was an increase in the state’s sales tax on computer and data processing services from 1 to 3 percent, as well as new combined reporting rules for businesses operating in Connecticut. The legislature backed down on those changes after corporations decried the measures and leaned heavily on the governor. The new deal maintains the sales tax rate on computer and data processing and delays the start of combined reporting by one year.  The close to $1 billion revenue package also includes higher personal income taxes for very wealthy households, the elimination of an exemption on clothing under $50, cuts to a property tax credit, and a cap on car taxes paid in some districts.  

Illinois (Still Active): Gov. Bruce Rauner and lawmakers face a reckoning of their own making; the state could be headed toward a shutdown without a resolution. Rauner wants to address the state’s $6.1 billion budget gap with massive spending cuts to healthcare, education and other public services in a budget proposal denounced as “morally reprehensible” by critics in the state. The legislature and the Governor are at a standstill.

Louisiana (Enacted): State leaders grappled with how to close a $1.6 billion budget gap all session long. Eventually, they passed a package of eleven bills that will raise about $660 million in revenue. The package increases the state cigarette tax by 32 cents per pack, scales back business subsidies, and decreases many of the state’s existing tax breaks through a 20 percent across-the-board cut. Most of the new revenue raised by the package of bills will go toward preventing deep cuts to higher education and healthcare programs. To win approval from Gov. Bobby Jindal, lawmakers were forced to adopt a convoluted plan with a fake fee and fake tax credit as a smokescreen for raising revenue so that the governor could keep his promise to Grover Norquist not to raise taxes.

Vermont (Enacted): In order to address a revenue shortfall, Vermont lawmakers enacted a handful of tax increases this year.  Most notably, they broadened the income tax base by capping itemized deductions (mostly used by upper-income taxpayers) at just 2.5 times the value of the state’s standard deduction.  Sensibly, lawmakers also eliminated the ability to deduct Vermont state income tax from, well, Vermont state income tax.  They also expanded the state’s sales tax base to include all purchases of soda beverages.

 


Bobby Jindal's Louisiana is a Cautionary Tale for the Nation


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While Louisiana Governor Bobby Jindal has yet to lay out a specific tax plan in the run up to his presidential campaign announcement, he has fought to reduce taxes for the wealthy and corporations at the expense of everyone else. He outlined his vision in his 2013 plan that sought to eliminate the state’s income tax and replace it with revenue from an expanded sales tax, a reform that would dramatically cut taxes for the wealthy while increasing them for at the expense of low- and middle-income people.

Record as Governor of Louisiana

Just a few months into his first term in 2008, Gov. Jindal signed into law the largest tax cut package in Louisiana history. At the time, the state had a nearly $1 billion surplus.  But this additional revenue quickly deteriorated due to the tax cut and the state’s failure to rein in ever-growing tax expenditures, such as the state’s expensive and wasteful film tax credit program. By 2015, the state faced a budget gap of $1.6 billion, even after years of harsh budget cuts across the state and the depletion of the state’s rainy day funds.

Despite the collapse of the state’s fiscal situation, Gov. Jindal stuck to Grover Norquist’s no-tax pledge, which requires politicians to never raise a penny in new tax revenue. The spending cuts that would have been needed to close the state’s 2015 budget gap, however, were so large that legislators insisted that raising tax revenue was necessary. Given his national ambitions, Gov. Jindal craftily structured his response so that he could increase tax revenues without technically violating the no-tax-pledge popular among many primary voters.

How can a governor raise taxes without violating the no-tax pledge? Gov. Jindal’s created a Rube Goldberg-like budget gimmick. Gov. Jindal passed a massive increase in college fees, which he then exactly offset with a new tax credit, resulting in no actual increase in cost for students. Because college “fee” increases do not technically count as a “tax” under Norquist’s formula, Gov. Jindal could claim that the tax credit half of his plan was a substantial new tax cut. Gov. Jindal could then sign an increase in actual taxes (including cigarette taxes and other levies) without violating the pledge under the dubious claim that the “tax” portion of this package was revenue-neutral. The tax increase piece of the package includes a substantial increase in the state’s cigarette tax, an annual cap of $180 million on the film tax credit and a series of smaller temporary revenue measures.

Putting aside Gov. Jindal’s budget shenanigans, the governor also has a history of trying to make Louisiana’s already regressive tax system even more so. In 2013, Gov. Jindal pushed to replace the state’s personal and corporate income taxes with an expanded sales tax. According to an analysis by the Institute on Taxation and Economic Policy (ITEP), the governor’s plan would have significantly increased taxes on the bottom 80 percent of Louisianans, while at the same time giving the top 1 percent of Louisianans an average tax break of $25,423 annually. Fortunately, Gov. Jindal’s plan quickly collapsed as the data on the unfairness of the plan spread throughout the state.

Record on Federal Tax Issues

Gov. Jindal’s support for deficit-inducing tax cuts for the rich on the state level mirrors his support for such policies at the federal level. During his campaign for Congress in 2004, Gov. Jindal advocated for making the Bush tax cuts permanent. As a member of Congress, Gov. Jindal voted for Bush’s extension of a preferential tax rate on capital gains and dividend income and for a permanent repeal of the estate tax, two of the most regressive aspects of the Bush tax cut package.

The closest that Gov. Jindal has come so far to laying out his vision for federal tax reform overall came in 2012 when he voiced his support for former Texas Gov. Rick Perry’s flat tax plan, which would have blown a $10.5 trillion hole in the budget over ten years and provided the richest one percent of taxpayers an average annual tax cut of over $272,000.

While Gov. Jindal has not yet laid out a specific tax reform plan as part of his newly launched presidential campaign, he has clearly demonstrated his support for regressive and fiscally imprudent tax cuts at the state and federal level.


State Rundown 6/8: Compromise and Defeat


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As legislative sessions across the country enter the final stretch, many states are buzzing with activity around tax policy. Lawmakers in Kansas and Maine are still working on behind-the-scenes negotiations aimed at resolving differences around major tax deals, while Ohio and North Carolina lawmakers are expected to release budgets with more personal income tax cuts (on top of the cuts enacted in recent years). Meanwhile, Alabama, Minnesota, Florida and Illinois are headed into special sessions to tackle thorny budget and tax issues and, in some cases, enduring budget shortfalls. 

Iowa lawmakers reached a budget compromise last week, ending a stalemate that took the state legislature a week beyond its expected adjournment. The debate centered on how to spend a budget surplus. Republican legislators were reluctant to increase spending on ongoing expenses using one-time money, while Democratic legislators and Gov. Terry Branstad wanted to use the surplus to invest in education and human services. The deal includes a 1.25 percent increase in K-12 spending next fiscal year as well as $55 million in one-time expenditures for public schools this fiscal year. In all, the budget next fiscal year will increase by about $299 million.

Rhode Island lawmakers are considering various tax breaks, among them proposals to exempt retirement income from the personal income tax. State Rep. Robert Craven has proposed exempting all state, local and federal retirement income, including Social Security and military pensions paid to those 65 and older, from state income taxation. Craven argues that the measure will keep retirees from moving out of state, though research shows that retirees don’t move for tax reasons. Critics of the plan argue that most of the benefits would go to wealthier citizens. Gov. Gina Raimondo has proposed a more targeted retirement income exemption that would fully exempt Social Security income from taxation for single filers with annual household incomes of $50,000 or less and married filers making $60,000 or less.  House Speaker Nicholas Mattiello supports a similar approach, although married couples earning $100,000 or less ($80,000 for singles) would be exempt from paying taxes on Social Security under his plan. The speaker also supports raising the state EITC to 12.5 percent of the federal credit, an improvement but less than the 15 percent proposal included in Gov. Gina Raimondo’s budget.

Louisiana legislators narrowly rejected a bill that would have doubled the state’s Earned Income Tax Credit (EITC) from 3.5 to 7 percent of the federal credit. If enacted, the change would have benefitted 515,000 Louisianans every year. So far this year, lawmakers in the state have approved or extended a variety of credits for business owners and corporations. One state representative called the EITC “essentially welfare written into the tax code” and sought to do away with the credit altogether. Other representatives rebuked their colleagues for doing nothing to help working families in the state, noting that Louisiana has a starkly regressive tax system.

 

States Ending Session This Week:
Louisiana

 


Louisiana Legislators Try to Avoid the Wrath of Grover Norquist


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who-the-hell-is-grover-norquist.jpgMost Americans learned in their grade school government and civics classes about the three branches of federal and state government. Perhaps kids in Louisiana should also learn about a fourth branch, Grover Norquist of Americans for Tax Reform (ATR), who apparently has veto power over crucial legislation.

Louisiana’s leaders have grappled with how to close a $1.6 billion budget gap all session. The wound is self-inflicted; lawmakers and Gov. Bobby Jindal passed the biggest tax cut in Louisiana’s history back in 2008, when oil prices were high and the state had a $1 billion surplus, instead of investing money in priority areas like education, health care and infrastructure. After the economic slowdown, Jindal and state leaders turned to a variety of tax incentives and one-off revenue sources to increase job growth and balance the budget to no avail. Today, oil prices are at record lows and Louisiana lags the nation in growth. But instead of reversing tax cuts that haven’t lead to prosperity, lawmakers are cowering in fear of anti-tax advocate Grover Norquist, who doesn’t even live in the state.

Gov. Jindal, widely rumored to be preparing a presidential run, has insisted that any solution to the budget problem must be revenue-neutral and in accordance with the dictates of Norquist’s famous anti-tax pledge. The governor and legislators, caught between their need to balance the budget and kowtow to Grover, are tying themselves in knots to raise taxes without appearing to do so.

Take the bill recently under consideration in the state Senate that would make Rube Goldberg proud. Senators first considered a package of bills from the House that would raise $664 million to stave off devastating cuts to higher education, but did not include the offsets demanded by ATR. In order to pass muster with the national group, senators invented a new “fee” for college students that would raise the same amount as the House tax increases, then promptly offset this fee with a tax credit. At the end of the day, students won’t actually pay more, since the credit will apply at the same time that the fee is levied. And since fees don’t count under the ATR pledge, Gov. Jindal can claim that the tax increases were offset by the new student credit.

Again, the Louisiana Senate was forced to adopt a convoluted plan with a fake fee and fake tax credit as a smokescreen for raising revenue so that the governor could keep his promise to an anti-tax advocate in Washington, DC. That’s the world we live in.

The gambit appears to have fooled no one. The Hayride, a conservative blog proclaimed by ATR as “Louisiana’s premier political website,” has called the measure an outright tax increase. A number of senators refused to support the bill, saying legislators were “playing games.”

The entire bait-and-switch wouldn’t even work if it weren’t for the ATR’s strange distinction between raising taxes (terrible!) and raising fees (meh). The conventional wisdom in some quarters is that charging fees for state services is better that raising taxes broadly because fees fall directly on beneficiaries. But while this seems fairer, it is the opposite in practice. Fees rarely rise with inflation, the way that conventional tax revenue does. They place a bigger burden on low-income residents, who have less ability to pay. And many of the services that states have turned to fees to fund, like higher education, have many indirect benefits for society that should be supported through broad taxation. Sadly, as more and more lawmakers defer to the opinions of Grover Norquist and his ilk rather than adopting commonsense fiscal policies, more states have come to rely more heavily on fees.

The solution to this mess isn’t gimmicky legislation. The solution is for legislators and governors to grow a backbone and stand against Grover’s anti-tax zealotry. Lawmakers should consider their obligations to their constituents rather then bending to the caprice of a beltway insider.

 


State Rundown 5/22: Last-Minute Fireworks


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A Louisiana Senate committee passed a package of eleven bills that would raise an additional $615 in revenue next fiscal year. If passed, the package will raise the state cigarette tax by 32 cents per pack, scale back business subsidies, and decrease many of the state’s existing tax breaks through a 20 percent across-the-board cut. Most of the new revenue raised by the package of bills would go toward preventing deep cuts to higher education and healthcare programs. The bills have garnered opposition from many business groups, and are likely to have a tough time gaining the governor’s signature. Gov. Bobby Jindal has pledged to veto any measure considered a net tax increase by Grover Norquist, who is the head of Americans for Tax Reform and not a resident of Louisiana.

Minnesota’s lawmakers are headed for a special session after Gov. Mark Dayton pledged to veto a $400 million education spending bill that does not include additional funds for universal pre-kindergarten. The veto comes after an offer by Dayton to drop his insistence on universal pre-kindergarten in exchange for $125 million in additional educational funding was rebuffed by conservative lawmakers. The veto and call for a special session cap five months of negotiations and failed compromises over the budget. In the press conference announcing his planned veto, Gov. Dayton railed against lawmakers for considering billions of dollars in tax cuts but balking at funding education, saying "It's astonishing that with a $1.9 billion projected surplus and more than $1 billion on the bottom line for future tax cuts, there would not be more invested in our schools this year."

Oklahoma lawmakers passed an unbalanced budget deal that would cut the higher education budget deeply but allow disastrous tax cuts to take effect. Facing a $611 million budget deficit, the legislature decided to address most of the shortfall through the use of $589 million in agency and reserve funds. The rest of the shortfall was made up in cuts to higher education ($24.1 million). Some agencies will see budget cuts of up to 7.25 percent, while a proposal to increase teacher pay and add days to the school year will likely be scrapped. Meanwhile, a cut in the top personal income tax rate from 5.25 to 5 percent will continue as planned, despite the revenue shortfall and its cost of $200 million over two years. The cut will overwhelmingly benefit the wealthy, with ITEP data revealing that the top 1 percent of Oklahoma taxpayers will receive an average cut of $2,127 while those in the middle will get an average cut of just $31. The Oklahoma Policy Institute called for the rejection of the budget deal  as it “barely maintains some vital services only by using up hundreds of millions in one-time revenues that will immediately dig another large budget hole for next year. Oklahoma will not be able to kick this can down the road much longer. Legislators should reject this budget and demand a balanced plan that includes sustainable revenue options.”

 


New Year, New Gas Tax Rates


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Residents of 10 states will see their gasoline tax rates change on Jan. 1, but the direction of those changes is decidedly mixed.  Five states will raise their gas tax rates when the clock strikes midnight, while the other five will cut theirs, at least for the time being.

Among the states with gas tax increases are Pennsylvania (9.8 cents), Virginia (5.1 cents), and Maryland (2.9 cents).  Each of these increases is taking place as scheduled under major transportation finance laws enacted last year.

North Carolina (1 cent) and Florida (0.3 cents) are also seeing smaller gas tax increases as a result of formulas written into their laws that update their tax rates each year alongside inflation or gas prices.

The states where gas tax rates will fall are Kentucky (4.3 cents), West Virginia (0.9 cents), Vermont (0.83 cents), Nebraska (0.8 cents), and New York (0.6 cents).  Each of these states ties at least part of its gas tax rate to the price of gas, much like a traditional sales tax.  With gas prices having fallen, their gas tax rates are now falling as well.

While some drivers may be excited by the prospect of a lower gas tax, these cuts will result in less funding for bridge repairs, repaving projects, and other infrastructure enhancements that in many cases are long overdue.  Because of this, Georgia Governor Nathan Deal recently signed an executive order preventing a gas tax cut from taking effect in his state on January 1.  And Kentucky is considering following Maryland and West Virginia’s lead by enacting a law that stabilizes the gas tax during times of dramatic declines in the price of gas.

But while states such as Kentucky may struggle to fund their transportation networks in the immediate wake of these tax cuts, these types of “variable-rate” gas taxes are still more sustainable than fixed-rate taxes that are guaranteed to become increasingly outdated with every passing year.  To that point, here are the states where gas tax rates will be reaching notable milestones of inaction on Jan. 1:

  • Iowa, Mississippi, and South Carolina will see their gas tax rates turn 26 years old this January.  Each of these states last increased their gas taxes on January 1, 1989.  
  • Louisiana will watch as its gas tax rate hits the quarter-century mark.  Its gas tax was last raised on January 1, 1990.  
  • Colorado’s gas tax rate will “celebrate” its 24th birthday on New Years Day, having last been increased on January 1, 1991.
  • Delaware will become the newest addition to the 20+ year club as it “celebrates” two decades since its last gas tax increase on January 1, 1995.

Gas tax rates need to go up if our infrastructure is going to be brought into the 21st century Jan. 1 may be a mixed bag in that regard, but it’s increasingly likely that things could change soon as debates over gas tax increases and reforms get under way in states as varied as Georgia, Idaho, Iowa, Michigan, New Jersey, South Dakota, Tennessee, Utah, and Wisconsin.


State Rundown 9/19: Income Tax Debates and Film Tax Credits


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tax.news-article.jpgA new report from Standard and Poor’s that shows progressive income tax systems are better for state revenue could provide a boost to tax reformers in Massachusetts, according to The Boston Globe. Massachusetts is one of seven states with a flat personal income tax rate, and a bipartisan commission recently found that the state’s overall tax system places a greater burden on lower- and middle-income taxpayers than it does on the wealthy. They’ve recommended that the state adopt a graduated income tax structure -- a move that would require a voter-approved constitutional amendment. Similar proposals have been defeated at the polls five times, most recently in 1994. For our take on the S&P report, check out this blog post from our director, Matt Gardner.

Meanwhile, Tennessee voters will soon decide whether to ban their state legislature from ever imposing a state tax on all personal income (Tennessee currently taxes interest and dividend income). The measure is largely superfluous, since there is little chance state lawmakers would ever consider a broader income tax. The last attempt to introduce a tax on personal income, in 2002, resulted in strident protests, including a brick thrown through the governor’s office window. Lawmakers ended up passing a sales tax increase instead, the last time any general tax increase was passed in the state. In last year’s Who Pays report, Tennessee ranked in the bottom ten states for tax fairness.

The Louisiana Film Entertainment Association (LFEA) commissioned a study on the economic impact of the state’s film tax credit incentive program. They’ve tapped HR&A Advisors, a consulting firm that has done similar analysis of film tax credits for the Motion Picture Association in Massachusetts and New York. The results of the state’s own studies, commissioned by Louisiana Economic Development, show that film credits were a net loss to the state in 2012, and each dollar collected on film credits cost $4.35 in state revenue. In 2010, the state spent $7.29 for each dollar collected. The LFEA study is sure to come up with much rosier numbers.

California Governor Jerry Brown recently signed a bill that would triple funding for the state’s film and television tax credit program. The measure is meant to keep film and television production from leaving the state, and is the culmination of a yearlong campaign by entertainment industry lobbyists. Hollywood has been hammered by aggressive competition from other localities – like New York, Vancouver and Atlanta, where incentives were more generous – and new business models, like Netflix and HBOGo. While the measure enjoys broad support, not everyone is happy about the tax credits: the state’s public education unions fear the measure will reduce the money available for schools, while others have questioned the effectiveness and transparency of the credits. 


State News Quick Hits: How to Tax Twix and Much More


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The Illinois Fiscal Policy Center just unveiled its new Earned Income Tax Credit (EITC) website called EITC Works! The site allows users to plug in an address and learn the number of households in their House district currently receiving the credit, the number of children who benefit, and the economic benefits of the credit. Policymakers should be especially interested in this new resource because it also shows the impact of doubling the credit to 20 percent of the federal. The site is a great tool for anyone interested in understanding the local impact of this successful anti-poverty policy.

File this under things that make you go, “hmm.” Did you know that in some states plain Hershey bars are subject to the sales tax, but Twix bars are not because Twix contain flour?  Here’s an interesting read on the intricacies of taxing food, specifically take-and-bake pizzas. The piece affirms the importance of the Streamlined Sales Tax Governing Board and its goal “To assist states as they administer a simpler and more uniform sales and use tax system.”

Why would voters be inclined to vote for local referenda that raise taxes, but seem less supportive of state or national efforts to raise taxes? Read about the central Louisiana experience that may help answer this question here.

On the heels of the Missouri state legislature’s override of Governor Jay Nixon’s veto of a costly income tax cut package, a proposal that would increase the state sales tax to fund transportation projects is looking increasingly unlikely. Calling the proposed hike “hypocritical” in the face of the newly passed income tax cuts, which will largely benefit higher-income individuals, House Democrats are beginning to withdraw their support. Read about it here.


States Can Make Tax Systems Fairer By Expanding or Enacting EITC


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On the heels of state Earned Income Tax Credit (EITC) expansions in Iowa, Maryland, and Minnesota and heated debates in Illinois and Ohio about their own credit expansions,  the Institute on Taxation and Economic Policy released a new report today, Improving Tax Fairness with a State Earned Income Tax Credit, which shows that expanding or enacting a refundable state EITC is one of the most effective and targeted ways for states to improve tax fairness.

It comes as no surprise to working families that most state’s tax systems are fundamentally unfair.  In fact, most low- and middle-income workers pay more of their income in state and local taxes than the highest income earners. Across the country, the lowest 20 percent of taxpayers pay an average effective state and local tax rate of 11.1 percent, nearly double the 5.6 percent tax rate paid by the top 1 percent of taxpayers.  But taxpayers don’t have to accept this fundamental unfairness and should look to the EITC.

Twenty-five states and the District of Columbia already have some version of a state EITC. Most state EITCs are based on some percentage of the federal EITC. The federal EITC was introduced in 1975 and provides targeted tax reductions to low-income workers to reward work and boost income. By all accounts, the federal EITC has been wildly successful, increasing workforce participation and helping 6.5 million Americans escape poverty in 2012, including 3.3 million children.

As discussed in the ITEP report, state lawmakers can take immediate steps to address the inherent unfairness of their tax code by introducing or expanding a refundable state EITC. For states without an EITC the first step should be to enact this important credit. The report recommends that if states currently have a non-refundable EITC, they should work to pass legislation to make the EITC refundable so that the EITC can work to offset all taxes paid by low income families. Advocates and lawmakers in states with EITCs should look to this report to understand how increasing the current percentage of their credit could help more families.

While it does cost revenue to expand or create a state EITC, such revenue could be raised by repealing tax breaks that benefit the wealthy which in turn would also improve the fairness of state tax systems.

Read the full report


Film Tax Credit Arms Race Continues


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Tax credits for the film industry are receiving serious attention in at least nine states right now. Alaska’s House Finance Committee cleared a bill this week that would repeal the state’s film tax credit, and Louisiana lawmakers are coming to grips with the significant amount of fraud that’s occurred as a result of their tax credit program. Unfortunately for taxpayers, however, the main trend at the moment is toward expanding film tax credits. North Carolina and Oklahoma are looking at whether to extend their film tax credits, both of which are scheduled to expire this year. And California, Florida, Maryland, Pennsylvania, and Virginia lawmakers are all discussing whether they should increase the number of tax credit dollars being given to filmmakers.

The best available evidence shows that film tax credits just aren’t producing enough economic benefits to justify their high cost. While some temporary, relatively low-wage jobs may be created as a result of these credits, the more highly compensated (and permanent) positions in the film industry are typically filled by out-of-state residents that work on productions all over the country, and the world. And with film tax credits having proliferated in recent years, lawmakers who want to lure filmmakers to their states with tax credits are having to offer increasingly generous incentives just to keep up.

Saying “no” to Hollywood can be a difficult thing for states, but here are a few examples of lawmakers and other stakeholders questioning the dubious merits of these credits within the last few weeks:

North Carolina State Rep. Mike Hager (R): “I think we can do a better job with that money somewhere else. We can do a better job putting in our infrastructure … We can do a better of job of giving it to our teachers or our Highway Patrol.”

Richmond Times Dispatch editorial board: [The alleged economic benefits of film tax credits] “did not hold up under scrutiny. Subsidy proponents inflated the gains from movie productions – for instance, by assuming every job at a catering company was created by the film, even if the caterer had been in business for years. The money from the subsidies often leaves the state in the pockets of out-of-state actors, crew, and investors. And they often subsidize productions that would have been filmed anyway.”

Oklahoma State Rep. James Lockhart (D): According to the Associated Press, Lockhart “said lawmakers were being asked to extend the rebate program when the state struggles to provide such basic services as park rangers for state parks.” “How else would you define pork-barrel spending?”

Alaska State Rep. Bill Stoltze (R): “Some good things have happened from this subsidy but the amount spent to create the ability for someone to be up here isn't justified. And it's a lot of money … Would they be here if the state wasn't propping them up?”

Sara Okos, Policy Director at the Commonwealth Institute: “How you spend your money reveals what your priorities are. By that measure, Virginia lawmakers would rather help Hollywood movie moguls make a profit than help low-wage working families make ends meet.”

Maryland Del. Eric G. Luedtke (D): Upon learning that Netflix’s “House of Cards” will cease filming in Maryland if lawmakers do not increase the state’s film tax credit: “This just keeps getting bigger and bigger … And my question is: When does it stop?”

Picture from Flickr Creative Commons


State Tax Breaks Pile Up


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Denver and Baton Rouge are 1,200 miles apart (not to mention some steep elevation change), but state lawmakers in these distinct capitals are grappling with a similar challenge: a tax code increasingly clogged with special interest tax breaks.

In Colorado, legislators have proposed a “bumper crop” of tax credits this year. The legislature has already had to beat back a bill that would have provided $11.6 million in tax credits for parents who send their children to private schools, but dozens more are awaiting consideration. Tim Hoover, communications director for the Colorado Fiscal Institute, has compared the atmosphere at the Capitol to a recording of “Oprah”: “Tax incentives are handed out the way Oprah gives away cars to her audience members. You get a tax credit! You get a tax credit. Everybody gets a tax credit."

In 2009, Colorado lost $2.7 billion to various tax credits, exemptions, and deductions. The only reason we’re even able to put a number on these otherwise hidden tax provisions is because the state recently joined most of the rest of the country by publishing a tax expenditure report (PDF). The good news is that some Colorado legislators are now trying to make this report a regular feature of the state’s budgeting process, published every two years. The bad news (other than all the new breaks that lawmakers are trying to pile on) is that the report does nothing to show if the state’s tax breaks are having their intended effect. This is one reason why Colorado was ranked as “trailing behind” in the pursuit of evidence-based tax policy by the Pew Center on the States.

While Louisiana is ranked higher by Pew as a result of having evaluated at least some of its tax breaks, its tax code is similarly jam-packed with special interest giveaways. But thanks to Louisiana State House Speaker Chuck Kleckley, the effectiveness of these exemptions will be the subject of a new, independent tax study this year, with recommendations to be released next spring. Don’t get too excited, though. In 2012, Louisiana created the Legislature's Revenue Study Commission which recommended better monitoring of tax exemptions, but that recommendation has yet to have much of a tangible impact.

Colorado and Louisiana, like most states, still have a long way to go in making regular evaluation of their tax breaks a reality, but if they’re looking for a little inspiration they may want to direct their attention toward the progress being made in Rhode Island.  The Ocean State now requires that state analysts determine the number of jobs actually created by certain “economic development” tax breaks, and that the Governor make recommendations on those tax breaks in his or her budget proposal.


A Reminder About Film Tax Credits: All that Glitters is not Gold


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Remember the 2011 Hollywood blockbuster The Descendants, starring George Clooney? Odds are yes, as it was nominated for 5 Academy Awards. Perhaps less memorable were the ending credits and the special thank you to the Hawaii Film Office who administers the state’s film tax credit – which the movie cashed in on.

Why did a movie whose plot depended on an on-location shoot need to be offered a tax incentive to film on-location? The answer is beyond us, but Hawaii Governor Abercrombie seems to think it was necessary as he just signed into law an extension to the credit this week.

Hawaii is not alone in buying into the false promises of film tax credits. In 2011, 37 states had some version of the credit. Advocates claim these credits promote economic growth and attract jobs to the state. However, a growing body of non-partisan research shows just how misleading these claims really are.

Take research done on the fiscal implications such tax credits have on state budgets, for example: 

  • A report issued by the Louisiana Legislative Auditor showed that in 2010, almost $200 million in film tax breaks were awarded, but they only generated $27 million in new tax revenue. According a report (PDF) done by the Louisiana Budget Project, this net cost to the state of $170 million came as the state’s investment in education, health care, infrastructure, and many other public services faced significant cuts.

  • The Massachusetts Department of Revenue – in its annual Film Industry Tax Incentives Reportfound that its film tax credit cost the state $200 million between 2006 and 2011, forcing spending cuts in other public services.

  • In 2011, the North Carolina Legislative Services Office found (PDF) that while the state awarded over $30 million in film tax credits, the credits only generated an estimated $9 million in new economic activity (and even less in new revenue for the state).

  • The current debate over the incentive in Pennsylvania inspired a couple of economists to pen an op-ed in which they cite the state’s own research: “Put another way, the tax credit sells our tax dollars to the film industry for 14 cents each.”

  • A more comprehensive study done by the Center on Budget and Policy Priorities (CBPP) examined the fiscal implications of state film tax credits around the country. This study found that for every dollar of tax credits examined, somewhere between $0.07 and $0.28 cents in new revenue was generated; meaning that states were forced to cut services or raise taxes elsewhere to make up for this loss.

Not only do film tax credits cost states more money than they generate, but they also fail to bring stable, long-term jobs to the state.

The Tax Foundation highlights two reasons for this. First, they note that most of the jobs are temporary, “the kinds of jobs that end when shooting wraps and the production company leaves.” This finding is echoed on the ground in Massachusetts, as a report (PDF) issued by their Department of Revenue shows that many jobs created by the state’s film tax credit are “artificial constructs,” with “most employees working from a few days to at most a few months.”

Second, a large portion of the permanent jobs in film and TV are highly-specialized and typically filled by non-residents (often from already-established production centers such as Los Angeles, New York, or Vancouver). In Massachusetts, for example, nearly 70 percent of the film production spending generated by film tax credits has gone to employees and businesses that reside outside of the state. Therefore, while film subsidies might provide the illusion of job-creation, they are actually subsidizing jobs not only located outside the state, but in some cases – outside the country.

While a few states have started to catch on and eliminate or pare back their credits in recent years (most recently Connecticut), others (including Maryland, Nevada, Pennsylvania, and Ohio) have decided to double down. This begs the question: if film tax credits cost the state more than they bring in and fail to attract real jobs, why are lawmakers so determined to expand them?

Perhaps they’re too star struck to see the facts. Or maybe they, too, want a shout out in a credit reel.


Louisiana Film Tax Credit Costs More Than It Brings In


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More than a month after Louisiana Governor Bobby Jindal “parked” his widely-panned proposal to repeal the state’s income tax, state policymakers now are returning to what should be a more straightforward tax reform issue. A new report (PDF) from the Louisiana Legislative Auditor critically evaluates the workings of the state’s film tax credit, which gives Louisiana-based film productions a tax credit to offset part of their expenses when they hire Louisiana workers or spend money on production expenses locally.

From a cost perspective alone, it makes sense to take a hard look at this provision: the state has spent over $1 billion on these Hollywood handouts in the past decade.

But the Auditor’s report is also a good reminder of just how little the state is getting in return for this massive outlay. The report estimates that after doling out almost $200 million in film tax breaks in 2010, the state enjoyed just $27 million in increased tax revenue from the film-related economic activity supposedly encouraged by this tax break.

This means a net loss to the state of about $170 million in just one year.

It’s hardly news that film tax credits offer little bang for the buck: last year the Louisiana Budget Project reported (PDF) that each new job created by the film tax credit is costing the state $60,000, and a recent report (PDF) from the Massachusetts Department of Revenue found that a huge chunk of that state’s film tax credits were going to wealthy taxpayers living in other states. Even when these credits create in-state jobs (and they do generate some economic activity), the transitory nature of film productions means those jobs probably will be gone when the production leaves town. And it’s virtually impossible for lawmakers to know whether they’re really attracting film productions to the state—or just rewarding moviemakers for doing what they would have done anyway (as “incentives” often do). Either way, Louisiana taxpayers are still doling out more than they are getting back.

But it’s not all bad, according to the Auditor’s report: the Louisiana credit does appear to be going largely to film productions that are technically eligible for it. So, as far as the Auditor can tell us, the film tax credit is simply ineffective and not an outright scam. Or at least, it wasn’t until this guy pleaded guilty to fraudulently claiming the credit, which is similar to what happened repeatedly in Iowa after that state’s disastrous experiment with Hollywood tax breaks.

After surviving the three-month train wreck that was the rollout of Governor Jindal’s tax plan, Louisiana lawmakers should find the film tax credit an easy problem to solve since they know how much it costs and just how little they’re getting in return. Right now they’re just tinkering around the edges, but pulling the plug on handouts to Hollywood should be high on policymakers’ to-do list.

Tuesday, the Ohio House of Representatives approved their budget bill which included an across the board 7 percent reduction in income tax rates. Though the House tax plan is less costly than the Governor’s original proposal, Policy Matters Ohio, using Institute on Taxation and Economic Policy (ITEP) data, makes the point that this reduction will still benefit the wealthiest Ohioans. “For the top 1 percent, the tax plan would cut $2,717 in taxes on average. For the middle 20 percent, it would amount to a $51 cut on average. For the bottom 20 percent, it would result in $3 on average.”

This week the Minnesota Senate unveiled their tax plan which, (unlike Governor Dayton’s plan and the House plan wouldn’t create a new top income tax bracket,) would raise the current top rate from 7.85 to 9.4 percent. About 6 percent of taxpayers would see their taxes go up under the Senate plan. Both houses of the legislature and the Governor are committed to tax increases and doing the hard work necessary to raise taxes in a progressive way. Senator Majority Leader Tom Bakk recently said, "Some people are probably going to lose elections because we are going to raise some taxes, but sometimes leading is not a popularity contest."

We’d be remiss if we didn’t draw your attention to this study (PDF) by Ernst and Young for the Council on State Taxation which cautions state lawmakers about expanding their sales tax bases to include services purchased by businesses. Louisiana Governor Bobby Jindal’s failed attempt at income tax elimination included broadening the sales tax base to include a variety of services, including business-to-business services. Ironically, Ernst and Young was hired by the Governor to consult about his plan. Toward the end of the tax debate there, the AP pointed out the disparity between the Governor's consultants’ stance on taxing business-to-business services and what the Governor himself was proposing.

Rhode Island analysts are urging lawmakers to take a closer look at the $1.7 billion the state doles out in special tax breaks each year.  A new report from the Economic Progress Institute recommends rigorous evaluations of tax breaks to find out if they’re working. It then recommends attaching expiration dates to those breaks so that lawmakers are voting whether to renew them based on solid evidence about their effectiveness. These goals are also reflected in a bill (PDF) under consideration in the Rhode Island House -- Representative Tanzi’s “Tax Expenditure Evaluation Act.”

We’ve criticized Virginia’s new transportation package for letting drivers off the hook when it comes to paying for the roads they use, and now the Commonwealth Institute has crunched some new numbers that make this very point: “Currently, nearly 70 percent of the state’s transportation revenue comes from driving-related sources ... But under the new funding package, that share drops to around 60 percent ... In the process the gas tax drops from the leading revenue source for transportation to third place; and sales tax moves into first.”


Louisiana Tax Overhaul Collapse as Bellwether? We Can Only Hope.


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Last week we brought you news that Louisiana Governor Bobby Jindal was abandoning his plan to eliminate the state personal and corporate income taxes and replace the revenue with an expanded sales tax. Instead, the Governor asked the legislature to “Send me a plan to get rid of our state income tax.” But now the legislature is denying the Governor’s request.

House Ways and Means Committee Chair Representative Robideaux has asked his colleagues to “defer” the bills they already had in the works to repeal the state income tax, and he’s said that he won’t allow hearings on any income tax repeal bill, closing the door on any attempt to eliminate the state’s income tax. Robideaux said, “I think it’s probably dead for the session, right now, there’s probably income tax fatigue.”  Importantly, he also asks, “Is there a constituent base out there demanding repeal of the income tax?” The answer is that two thirds of Louisianans actually opposed the Governor’s plan for this tax swap, which happens to be about the same percentage of Louisianans who stand to lose the most if any such tax plan gets implemented.

Jindal’s failure is a victory for tax justice advocates and a may serve as a lesson for lawmakers in other states entertaining similarly radical tax ideas.

The St. Louis Post Dispatch, for instance, editorialized, “Louisiana's lawmakers realize what Missouri's don't: Income tax cuts are suicidal.” Missouri lawmakers are debating their own draconian tax plan that would roll back income taxes. The Post Dispatch continues, “What Louisiana has recognized is that the supposed benefits of cutting state income taxes are vastly overstated. The impact of service cuts is vastly understated. The effect is that rich people and corporations get richer. Everyone else gets poorer.”  

In another state, Georgia, income tax elimination has been debated for years, but this columnist with the Atlanta Journal Constitution is hopeful that the tax justice victory in Louisiana will lead to Georgia lawmakers reconsidering their own proposal, which eliminates the personal and corporate income tax for no good reason.

Tax plans similar to Jindal’s have hit road blocks in Nebraska and Ohio this year. Among the many reasons these plans fail, it seems, is that when people realize that they amount to unwarranted tax cuts for the rich that raise taxes for everyone else and probably bust the budget, too, common sense prevails and these ideas are defeated. 

We know that Louisianans dodged a bullet when the Governor’s plan fell apart.  And while it’s good news that a big reason was widespread concern over its fundamental unfairness, the fact is Bobby Jindal is not the only supply-sider committed to eliminating the income tax. So we savor the victory, yes, but also prepare for the next battle as similar plans are winding their ways through other state capitals.


Governor Jindal Admits Defeat, Abandons His Tax Plan


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In a speech to the Louisiana Legislature yesterday, Governor Bobby Jindal announced that he would “park” his tax plan. There is no doubt this is a huge blow to supply-side advocates and Arthur Laffer enthusiasts who tout false claims that tax cuts will ultimately pay for themselves and increase economic development.

The Governor’s controversial plan would have repealed the state’s personal and corporate income and franchise taxes and then paid for these tax cuts by increasing the sales tax. The sales tax changes included increasing the state tax rate from 4 percent to 6.25 percent, and expanding the base of the tax to include a wide variety of previously untaxed services and goods. ITEP found that the Governor’s plan would have raised taxes on the bottom 60 percent of Louisianans, as tax swaps tend to do.

The Governor’s plan met enormous resistance “in recent weeks as business groups and advocates for the poor have assailed its effects and think tanks have questioned whether the math in the proposal adds up.” Now the Governor is backing away from his proposal and urging the legislature to send him its own bill – one that would also eliminate the personal income tax – leaving “tax reform” up to the state legislature.

The key fact to bear in mind for Louisiana is that aside from raising the sales tax, there is really no way for the state to replace nearly $3 billion in revenue that will be lost if the income tax is eliminated. Lawmakers would do better to stay away from supply-side theories and instead close corporate tax loopholes, reverse the regressivity of the state’s tax structure and invest in public infrastructure because that is what real reform looks like.


This Just In: Louisianans Still Don't Trust Governor Jindal's Tax Plan


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Since January, we’ve brought you updates as best we could about Louisiana Governor Bobby Jindal’s controversial tax swap plan, but details remained elusive. Finally, late last week, the Governor released enough information – including a newly calculated, bigger sales tax rate increase – and the Institute on Taxation and Economic Policy (ITEP) was able to complete a full analysis of the Governor’s tax plan. The centerpiece of the Jindal plan is the outright repeal of the state’s personal and corporate income and franchise taxes. These tax cuts would be paid for primarily by increasing the state sales tax rate from 4 percent to 6.25 percent, and expanding the base of the tax to include a wide variety of previously untaxed services and goods.

ITEP’s analysis shows that, if fully implemented in 2013, the plan would increase taxes on the poorest sixty percent of Louisianans overall, while providing large tax cuts for the best-off Louisiana taxpayers. In fact, ITEP found that the poorest 20 percent of Louisianans would see a net tax increase averaging $283, or 2.4 percent of their income, while the very best-off Louisianans would see a tax cut averaging almost $30,000, or 2.5 percent of this group’s total income.

Louisiana Department of Revenue (DOR) Executive Counsel Tim Barfield continues to insist that all Louisianians will be better off under the Governor’s plan. But, as ITEP’s report points out, DOR’s estimates are flawed: they only include the impact of taxes paid directly by individuals and they ignore the impact of taxes paid initially by businesses. This approach presents an incomplete picture of how the Jindal plan would affect Louisianans, though, because a substantial share of the current sales tax, and the large majority of the expanded sales tax base the Governor proposes, would be paid initially by businesses. Economists generally agree that these business sales taxes are ultimately passed on to consumers in the form of higher prices.

Louisianans themselves aren’t buying the Governor’s numbers either. His tax swap plan has the support of only 27 percent of Louisianans – and that was before he upped the sales tax increase even further.

Read ITEP’s full analysis of Govenor Jindal’s tax plan here.

Here’s some happy news: a recent poll finds that just 27 percent of Louisianans support Governor Bobby Jindal’s tax swap, and that’s before the Institute on Taxation and Economic Policy (ITEP) released its latest analysis showing that the poorest 60 percent of taxpayers in Louisiana would see a tax hike as a result of the Governor’s plan.

A robotics company based in Nevada recently decided to abandon the state’s allegedly “business friendly” environment in favor of Silicon Valley in California, where there are better trained employees and plenty of deep pocketed investors. Nevada does not levy a personal or corporate income tax, but as Romotive founder Keller Rinaudo explains: "It was not a short-term economic decision ... We have to find experienced roboticists, and that really only exists in a few places in the world, and California is one of them."

Maryland’s gas tax will be increased and reformed starting July 1 under a bill just sent to Governor Martin O’Malley by the state’s legislature.  This year’s increase will be something less than 4 cents per gallon, but the tax will now rise each year alongside inflation and gas prices, as recommended by ITEP. ITEP showed that even with the increase, Maryland’s gas tax rate will still remain below its historical average and be less than the state probably needs.

Here’s an interesting story in the Minnesota Star Tribune about how Governor Dayton’s tax plan would impact the wealthiest Minnesotans. While opponents resort to the usual tax-hikes-kill-jobs refrain, Wayne Cox of Minnesotans for Tax Justice notes, “Economists believe keeping teachers and firefighters on the payroll is at least three times more helpful to the economy than keeping income tax rates at the top the same.”

Tax cuts for opposite ends of the income spectrum are getting opposite treatment in Maine and Arkansas. This week, Maine lawmakers rejected a bill that would cut taxes on capital gains (which heavily benefits wealthy taxpayers) and approved an increase in the state’s Earned Income Tax Credit (EITC) (PDF), which amounts to a tax cut to low- and moderate-income families. But last week in Arkansas, a House panel approved a cut in taxes on capital gains while passing up an opportunity to enact a state EITC.

Oklahoma Governor Mary Fallin’s proposal to repeal the state’s top personal income tax bracket is “gaining traction,” according to The Oklahoman.  The plan has already passed the House, and has the support of the state Chamber of Commerce. But the Oklahoma Policy Institute explains that this cut is stacked in favor of high-income residents: “the bottom 60 percent of Oklahomans would receive just 9 percent of the benefit from this tax cut, while the top 5 percent would receive 42 percent of the benefit.”  

Texas and Washington State are continuing to search for ways to make it easier to identify and repeal tax breaks that aren’t worth their cost.  The Texas Austin American-Statesman reports on a bill that “would put the tax code under the microscope, examining tax breaks in a six-year cycle similar to the Sunset process that evaluates whether state agencies are performing as intended.”  And the Washington Budget and Policy Center explains in a blog post how “all three branches of state government have taken, or are poised to take, actions that could greatly enhance transparency over the hundreds of special tax breaks on the books in Washington state.”

This Toledo Blade editorial gets it right about Ohio Governor Kasich’s plan to broaden the sales tax base to include more services: “There is merit, in theory, to expanding the sales tax to include more services. But the experience in states such as Florida — which broadened its tax base, then abandoned the effort as unworkable — suggests it should be done slowly and for the right reasons.” Broadening the sales tax base is good policy, but the Kasich plan is bad for Ohioans because overall the plan (according to an Institute on Taxation and Economic Policy analysis) increases taxes on those who can least afford it while cutting taxes for the wealthy.

ITEP is waiting for full details of Louisiana Governor BobbyJindal’s tax swap plan, but already clergy and ministers in the state are weighing in against the Governor’s plan to eliminate state income taxes and replace the revenue with a broader sales tax base and a higher rate. In this commentary, the Right Rev. Jacob W. Owensby, (bishop of the Episcopal Diocese of Western Louisiana), worries: “It is difficult to see how increased sales taxes will pass the test of fairness that we would all insist upon. Our tax system has lots of room for improvement. But relying on increased sales tax will not give us the fair system we need. Raising sales taxes will increase the burden on those who can least afford it.”


Jindal Leaves Inconvenient Details Out of His Tax Plan


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Louisiana Governor Bobby Jindal today announced some details of his long-awaited “tax swap” plan. He proposes to repeal the state’s personal and corporate income taxes in a “revenue-neutral” way—that is, the revenue loss from repealing these taxes would have to be entirely offset by tax hikes in other areas.

We know the Governor’s so-called reform plan would increase the state sales tax rate from 4 to 5.88 percent—which in local-tax-heavy Louisiana means the average combined state and local sales tax rate statewide would shoot up from about 8.75 percent to a whopping 10.6 percent.

Since the sales tax rate hike would only pay for about a third of the revenue lost from repealing the income and corporate taxes, Jindal’s plan also relies heavily on expanding the state sales tax base to make up the remaining difference. Acccording to the Governor, he’d do it by eliminating close to 200 currently-existing sales tax exemptions. Jindal would also raise the cigarette tax by over $1 per pack.

There’s a lot we still don’t know about the plan (which was the case with his earlier plan, too). Jindal has said he will provide tax relief to seniors and low-income families to offset the impact of these potentially huge sales tax hikes. But how that would be implemented—and, critically, how much it would cost—remains unknown.

Still, the specific details we’ve heard so far are enough to raise several important concerns about the plan’s plausibility—and its impact on tax fairness and sustainability if it is enacted.

Eliminating sales tax exemptions is perhaps the most politically difficult tax reform challenge for state lawmakers – as Minnesota Governor Mark Dayton is the most recent to discover. Sure, every state tax commission for decades has identified expanding the sales tax base, mainly to services that account for more consumer dollars every year, as a way of making the sales tax a more sustainable revenue source for the long haul. But the fact is that the potentially devastating impact of this move on low-income families, coupled with the entrenched opposition of lobbyists for the many industries that would be newly taxed under these proposals, have generally meant that these proposals die a quick death in legislatures.

And even if the Louisiana Legislature could achieve what virtually no other state has ever done—wiping the slate clean by broadly erasing sales tax exemptions from the books—it seems inevitable that the plan as a whole would result in a massive tax shift onto middle- and low-income families—and a giant tax cut for the best-off Louisianans. Unless, that is, Louisiana is prepared to enact a low-income tax credit, one so generous it would dwarf anything offered by other states. But it appears that Governor Jindal's plan would only provide a tax rebate only to families earning less than $20,000, which does nothing to offset the sales tax increases facing a large group of middle-income Louisianans.

In recent months, Jindal has also made it clear that his motivation for this tax plan is to be more “competitive” and more like Texas and other “low tax” states. (Never mind that Texas is a high tax state for its poorest residents.)  Jindal has bought into a talking point crafted by Arthur Laffer (and disseminated by groups like ALEC and the Tax Foundation) about job growth resulting from low taxes.  But Laffer’s argument is a house of cards, entirely unsupported by the evidence, as ITEP has shown.  Early news reports of Jindal’s plan are that anti-tax groups love it and it boosts his odds of getting the Republican presidential nomination. But unless a tax plan is well received by ordinary constituents and boosts the state’s odds of economic success, it isn’t worthy of the word “reform.”


Beware The Tax Swap


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Note to Readers: This is the second of a six part series on tax reform in the states.  Over the coming weeks, The Institute on Taxation and Economic Policy (ITEP) will highlight tax reform proposals and look at the policy trends  that are gaining momentum in states across the country. This post focuses on “tax swap” proposals.

The most extreme and potentially devastating tax reform proposals under consideration in a number of states are those that would reduce or eliminate one or more taxes and replace some or all of the lost revenue by expanding or increasing another tax.  We call such proposals “tax swaps.”  Lawmakers in Kansas, Louisiana, Nebraska and North Carolina have already put forth such proposals and it is likely that Arkansas, Missouri, Ohio and Virginia will join the list.

Most commonly, tax swaps shift a state’s reliance away from a progressive personal income tax to a regressive sales tax. The proposals in Kansas, Louisiana, Nebraska and North Carolina, for example, would entirely eliminate the personal and corporate income taxes and replace the lost revenue with a higher sales tax rate and an expanded sales tax base that would include services and other previously exempted items such as food.   

In the end, tax swap proposals hike taxes on the majority of taxpayers, especially low- and moderate-income families and give significant tax cuts to wealthy families and profitable corporations. For instance, according to an ITEP analysis of Louisiana Governor Bobby Jindal’s tax swap plan (eliminating the personal income tax and replacing the lost revenue through increased sales taxes) found that the bottom 80 percent of Louisianans would see their taxes increase. In fact, the poorest 20 percent of Louisianans, those with an average annual income of just $12,000, would see an average tax increase of $395, or 3.4 percent of their income. At the same time, the elimination of the income tax would mean a tax cut for Louisiana’s wealthiest, especially in the top 5 percent.  ITEP concluded that any low income tax credit designed to offset the hit Louisiana’s low income families would take would be so expensive that the whole plan could not come out “revenue neutral.” The income tax is that important a revenue source.


These proposals also threaten a state’s ability to provide essential services, now and over time. They start out with a goal of being revenue neutral, meaning that the state would raise close to the same amount under the new tax structure as it did from the old.  But, even if the intent is to make up lost revenue from cutting or eliminating one tax, these plans are at risk of losing substantial amounts of revenue due in large part to the political difficulty of raising any other taxes to pay for the cuts. Frankly, it’s taxpayers with the weakest voice in state capitals who end up shouldering the brunt of these tax hikes: low and middle income families.

Proponents of tax swap proposals claim that replacing income taxes with a broader and higher sales tax will make their state tax codes fairer, simpler and better positioned for economic growth, but the evidence is simply not on their side. ITEP has done a series of reports debunking these economic growth, supply-side myths. In fact, ITEP found (PDF) that residents of so-called “high tax” states are actually experiencing economic conditions as good and better than those living in states lacking a personal income tax. There is no reason for states to expect that reducing or repealing their income taxes will improve the performance of their economies; there is every reason to expect it will ultimately hobble consumer spending and economic activity.

Here’s a brief review of some of the tax swap proposals under consideration:

Last week Nebraska Governor Dave Heineman revealed two plans to eliminate or greatly reduce the state’s income taxes and replace the lost revenue by ending a wide variety of sales tax exemptions. ITEP will conduct a full analysis of both of his plans, though it’s likely that increasing dependence on regressive sales taxes while reducing or eliminating progressive income taxes will result in a tax structure that is more unfair overall.

If Kansas Governor Sam Brownback has his way he’ll pay for cutting personal income tax rates by eliminating the mortgage interest deduction and raising sales taxes. An ITEP analysis will be released soon showing the impact of these changes – made even more destructive because of the radical tax reductions Governor Brownback signed into law last year.

Details recently emerged about Louisiana Governor Bobby Jindal’s plan to eliminate nearly $3 billion in personal and corporate income taxes and replace the lost revenue with higher sales taxes. ITEP ran an analysis to determine just how that tax change would affect all Louisianans. ITEP found that the bottom 80 percent of Louisianans in the income distribution would see a tax increase. The middle 20 percent, those with an average income of $43,000, would see an average tax increase of $534, or 1.2 percent of their income. The largest beneficiaries of the tax proposal would be the top one percent, with an average income of well over $1 million, who'd see an average tax cut of $25,423. You can read the two-page analysis here.

North Carolina lawmakers are considering a proposal that would eliminate the state’s personal and corporate income taxes and replace the lost revenues with a broader and higher sales tax, a new business license fee, and a real estate transfer tax. The North Carolina Budget and Tax Center just released this report (using ITEP data) showing that the bottom 60 percent of taxpayers would experience a tax hike under the proposal. In fact, “[a] family earning $24,000 a year would see its taxes rise by $500, while one earning $1 million would get a $41,000 break.” The News and Observer gets it right when they opine that the “proposed changes in North Carolina and elsewhere are based in part on recommendations from the Laffer Center for Supply Side Economics.  Supply-side economics (or “voodoo economics,” as former President George H.W. Bush once called it) didn’t work for the United States…. We wonder why such misguided notions endure and fear where they might take North Carolina.”


Governor Jindal's Bad Idea for Louisiana Attracts Scrutiny


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Late last week details emerged of Louisiana Governor Bobby Jindal’s plan to eliminate nearly $3 billion in personal and corporate income taxes and replace the lost revenue with higher sales taxes. Knowing that sales taxes take the biggest bite out of low-income family budgets, the Institute on Taxation and Economic Policy (ITEP) decided to issue an analysis to determine just how that tax change would affect all Louisianans. 

Though the governor indicated interest in some unspecified mechanism to mitigate the impact for the state’s poorest residents, he didn’t provide any details so ITEP couldn’t analyze it. But in any case, ITEP concluded that the “overall shift in tax liability is so dramatic that the plan is virtually guaranteed to have a regressive impact regardless of whether or not a low-income relief program is added to the package.”

In particular, ITEP found that the bottom 80 percent of Louisianans in the income distribution would see a tax increase. Specifically, the poorest 20 percent of taxpayers, those with an average income of $12,000, would see an average tax increase of $395, or 3.4 percent of their income. The middle 20 percent, those with an average income of $43,000, would see an average tax increase of $534, or 1.2 percent of their income. The largest beneficiaries of the tax proposal would be the top one percent, with an average income of well over $1 million, who'd see an average tax cut of $25,423.

You can read the 2-page analysis here.

The Governor said, “[e]liminating personal income taxes will put more money back into the pockets of Louisiana families and will change a complex tax code into a more simple system that will make Louisiana more attractive to companies who want to invest here and create jobs.” But this is doubly not the case. Far from putting more money back into the pockets of Louisiana families, his proposal would raise taxes on the poor and middle class. It would also threaten Louisiana’s ability to provide critical services (from schools to roads to a public health) in the future that are essential to the health of the state’s economy.

Fortunately, ITEP’s report is already helping inform the debate. Jindal tax reform proposal equates to increase for bottom 80%, Jindal tax plan draws mixed reviews and Cutting income tax is the easy part; filling the gap is trickier are a few of the news stories the report has generated.  If Governor Jindal offers more specifics or modifications, you will find updated analyses here and at www.ITEP.org.

To see ITEP’s recent preview of state tax reform prospects nationwide, click here.

 


Quick Hits in State News: Don't Be Like Louisiana, Don't Be Like Kansas


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Bad news out of Louisiana, where the chairman of a commission reviewing the state’s tax breaks says they will likely fail to make recommendations for which breaks should be reformed or eliminated.  Turns out no one has been collecting useful data on their cost and performance, and no methodology for comparing tax breaks against each other is available. Both of these shortcomings could have been prevented had the state followed ITEP’s five recommendations for tax expenditure reform .

Policy Matters Ohio has a new report reinforcing the idea that gambling revenue is not a panacea (PDF) for ailing state and local budgets.  The report’s major finding?  “New casino tax revenue will provide less than a quarter of the nearly $1 billion in annual losses local governments will see because of cuts in state aid... Ohio needs to boost its investment in schools, local governments and human services with additional revenue from those who can afford to pay. Revenue from gambling does not suffice.”

Here’s a great blog post from our friends at the Oklahoma Policy Institute (OKPolicy) about the diastrous tax plan that Kansas Governor Sam Brownback signed last May, and why Oklahoma policymakers shouldn’t pursue the same sorts of costly and regressive tax cuts enacted by their neighbors in the Sunflower State.  OKPolicy concludes, “Oklahoma does not need to be the next laboratory for Kansas’ radical tax experiment.”

Picking up on Mitt Romney’s infamous assertion about the 47 percent, this post from the Wisconsin Budget Project answers the question “Who’s in the “47%” in Wisconsin?” They use Census data and figures from the Center on Budget and Policy Priorities (CBPP) to figure out who really are the “moochers.” The Budget Project argues that there are “numerous Wisconsin workers who would probably love to earn enough to owe income taxes,” so the smart move would be implementing policy options to improve their compensation and help them join the tax -paying ranks.

Here’s a follow up to our previous post describing the effort to get a much needed severance tax increase on the ballot in Arkansas.  The former natural gas executive, Sheffield Nelson, who was behind the effort has said that he won’t have enough signatures to qualify this proposal for the November ballot.

Last month, a Louisiana Revenue Study Commission began looking into the state’s tax exemptions to see if these government handouts are effective. Now that Governor Bobby Jindal has been passed over as the Republican Vice Presidential nominee, it appears he’s going full speed ahead with revenue neutral tax “reform” efforts.  As part of the efforts to reform the tax structure and examine tax expenditures the Governor, other policymakers and taxpayers should review these new materials from the Louisiana Budget Project.

This week, Illinois Governor Pat Quinn signed into law legislation that imposes a new tax on strip clubs. Revenue generated from this new tax will fund programs for victims of sexual assault. By choosing to enact an entirely new tax that seems destined to raise little revenue, rather than enacting needed reforms in the taxes the state already levies, Illinois lawmakers have missed a chance to make the tax system fairer. The worthy goal of funding anti-abuse efforts would be better served by eliminating income, sales and corporate tax loopholes.

Iowa’s gas tax is at an all-time low and shrinking- and transportation infrastructure is suffering because of it.  Earlier in the year, we thought Governor Terry Branstad would champion an increase in the tax to address the state’s transportation funding needs.  Now we have learned the governor will only support a “modest” change in the gas tax if lawmakers first reduce property, personal income and corporate income taxes.  Which begs the question- how will Iowa pay for much needed road and bridge repairs if the state is left with even less revenue than it had before this so-called “reform” plan?

Photo of Bobby Jindal via Gage Skidmore Creative Commons Attribution License 2.0


Quick Hits in State News: Business Tax Credits Don't Measure Up, and More


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  • The Boston Globe covers an important new report finding that: “Over the past 16 years [Massachusetts] has more than doubled the amount of tax breaks it provides businesses to spur economic development but has only a vague idea whether the incentives are worthwhile.”  The full report, from the Massachusetts Budget and Policy Center, has more data on the large and growing cost of these breaks, and urges the state to thoroughly evaluate whether these so-called “incentives” are the best use of Massachusetts taxpayers’ dollars.
  • The value of Louisiana’s film tax credit is being seriously questionedAccording to the Louisiana Budget Project (LBP), the cost of the credit has ballooned in recent years, while producing little in the way of long-term benefits.  LBP finds that the state is paying a steep price of $60,000 for each job created by the credit, despite many of those jobs being only temporary.
  • Low-income Garden Staters are feeling the pinch from Governor Christie cutting back the state’s Earned Income Tax Credit (PDF) – an effective, targeted tax reduction for low- and moderate-income workers.  According to a New Jersey Policy Perspectives analysis, at a time when the number of New Jersey families living below the poverty line has increased by 25 percent, the reduced EITC has meant that nearly 500,000 families have lost on average $200 a year.  State lawmakers have attempted to restore the credit to 25 percent of the federal version (Christie cut it to 20 percent in 2010) and even the governor included a restoration in his original budget proposal this year.  However, politics got in the way and Christie vetoed legislation to restore the EITC until lawmakers agree to his expensive tax cut plan that benefits the wealthiest New Jersey residents.

Photo of Chris Christie via David Shankbone Creative Commons Attribution License 2.0

  • Louisiana is preparing to take a much closer look at the $4 billion it spends on special tax breaks each year, as the brand new Revenue Study Commission holds its first meeting this week.  The chairman of the state’s House tax-writing committee admits that “we don’t know” whether Louisiana’s tax breaks are working, even though “some of these things have been on the books for more than 80 years.”  Gov. Jindal may be the biggest obstacle to progress on this issue, as he’s said that eliminating an ineffective tax break is technically a “tax hike” that he would veto.
  • An op-ed in the Orlando Sentinel highlights the problems with Florida’s tax system, and how to fix them: “Our tax structure is inadequate to our needs, poorly matched with today's economy and unfair to average Floridians and small business owners.”  Writing for the Florida Center for Fiscal and Economic Policy, the author urges closing corporate tax loopholes and other special interest tax breaks to begin addressing these problems.
  • As we’ve pointed out before, most of Indiana gubernatorial candidate John Gregg’s tax ideas so far have been short-sighted and unaffordable.  But Gregg’s newest idea to create a child care tax credit is a good one, as has been recommended (PDF) by the Institute on Taxation and Economic Policy (ITEP).
  • The Anniston Star Editorial Board has a numbers-heavy piece explaining the problems with the state’s tax system.  In a nutshell: “Alabama may be a low-tax state for people and businesses at the upper end of the income scale, but at the lower end, Alabama’s tax system adds to people’s misery.”  ITEP has found that Alabama has one of the ten most regressive state and local tax systems in the country.

Stadium Subsidies: Playing Games With Taxpayer Dollars


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The history of states subsidizing professional sports stadiums with taxpayer dollars is long and, increasingly, controversial. Maryland provided nearly one hundred percent of the financing for the Orioles’ and Ravens’ shiny new facilities in the 1990s. In 2006, the District of Columbia subsidized the Washington Nationals’ new stadium at a cost to taxpayers of about $700 million.  And even though most stadiums are, in the long run, economic washes at best, losers at worst, there are still politicians willing to throw money at them.

Minnesota legislators, for example, are currently grappling with how to fund a new stadium for the Vikings in response to threats that the franchise may leave the state.  But before the legislature gives away nearly a billion dollars, State Senator John Marty raises some excellent points about the math, and morals, behind the proposed taxpayer subsidies for the stadium:

“The legislation would provide public money in an amount equivalent to a $77.30 per ticket subsidy for each of the 65,000 seats at every Vikings home game. That's $77 in taxpayer funds for each ticket, at every game, including preseason ones, for the next 30 years.… Public funds can create construction jobs, but those projects should serve a public purpose, constructing public facilities, not subsidizing private business investors. The need to employ construction workers is not an excuse to subsidize wealthy business owners, especially when there is such great need for public infrastructure work.” 

In  Louisiana, the House of Representatives has gone ahead and approved a ten-year, $36 million tax subsidy  to keep the state’s NBA team, the Hornets, in New Orleans until 2024. Some are asking if the state can really afford it given a $211 million budget gap.  Representative Sam Jones noted that while the state has cut health and education spending, it still found a way to come up with millions of dollars to help out the ”wealthiest man in the state.” That would be Tom Benson, owner of not only the Hornets but the legendary New Orleans Saints football team, whose net worth is $1.1 billion dollars.

In California, however, a different scenario is unfolding. Sacramento Mayor Kevin Johnson just abandoned negotiations with owners of the city’s NBA team, the Kings.  The Kings organization was unwilling to put up any collateral, share any pre-development costs, or commit to a more than a 15 year contract; this would have left the city shouldering all the costs – and all the risks – for developing the $391 million downtown facility.  Mayor Johnson said he’d offered everything he could to the team and it still wasn’t enough, so he pulled the plug. 

Given the high cost and low return (including in terms of jobs) that sports facilities generate, more leaders should follow Minnesota’s Marty and Sacramento’s Johnson and stand up for the taxpayers who pay their salaries.

(Thanks to Field of Schemes and Good Jobs First for keeping tabs on these subsidies!)

 

 


Are Louisiana's Billions in Business Tax Breaks Creating Jobs? Nobody Knows.


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Recently, the Louisiana Legislative Auditor issued a report that found the cost of the corporate income and franchise tax credits for the state was a staggering $3 billion between 2005 and 2010. The total tax liability during that same time was just $5.4 billion, which means the state lost over half of its potential revenues because of these credits, but no one can show how the state benefitted.  In 2009, in fact, those credits were worth $685 million, which is about 78 percent of all taxes owed by businesses that year.  When 14 separate agencies are giving away three quarters of the state’s business tax revenue in a year and no one can say why, it's a problem.

Not surprisingly, the Auditor recommends better monitoring of these costly incentives to determine if they are effective. Here’s a primer on why and how to measure business tax breaks’ impact. Because, when states do bother to track the economic effects of so-called incentives, they find the business lobby’s promise may not be fulfilled.

The Louisiana report goes on: “If the legislature is interested in the return on investment for the state’s tax credits and other exemptions, the legislature may wish to consider adding this [monitoring] requirement to state law and requiring the appropriate state entities to formally track and report this information.”

We suggest that the legislature do more than just consider increased monitoring and tracking and instead put those mechanisms in place immediately. Taxpayers have a right to know if their tax dollars are being spent effectively. As the Legislative Auditor Daryl Purpera said of the current system, "It is not good business practice. You'd think we'd be monitoring those funds as best we can.”

You’d think. In fact, Louisiana is one of the states in our Corporate Tax Dodging in the Fifty States report that has failed to enact a single one of six basic business tax reforms and is failing on key transparency measures that would make it easier for ordinary taxpayers to know the ways in which they are subsidizing corporations.


How Louisiana Celebrates the Second Amendment: A Sales Tax Holiday for Guns


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Over Labor Day weekend Louisiana shoppers purchasing items like firearms, ammunition, hunting supplies, holsters, certain knives and archery items didn’t pay any sales tax.  Shoppers participating in the “Second Amendment Weekend Sales Tax Holiday” should be aware that holidays like this one don’t make their state’s tax structure any fairer and they cost Louisiana money.

Governor Jindal is a big proponent of the holiday, saying, “This is a great opportunity for all hunters and campers to save money on the equipment they need to enjoy Sportsman’s Paradise. The weekend-long event will also bring more customers to our local hunting and sporting stores which will further benefit our businesses and Louisiana’s economy.”

Second Amendment politics aside, sales tax holidays are ridiculous tax policy. Holidays like this one and those offered during back-to-school time are not at all targeted, and targeting is the key to smart policy.  They do nothing to meaningfully help low and middle-income families struggling to make ends meet because they can’t just shop when the state says so.  Only wealthier consumers can postpone or move up their shopping to take advantage of these holidays. What’s more, the more well-off will likely make their purchase regardless of a tax holiday; saving four percent on the price probably does not change their consumer behavior.

Sales tax holidays falsely lull legislators into thinking they are helping families in a real way, and make too many families think the state is doing them a favor.  Sportsman’s Paradise or not, Louisiana policymakers should implement smart tax policies that offer more than just window dressing.  The Pelican State can start by ending the deduction it gives for every federal income tax dollar its citizens pay: the richer you are the more you benefit and it’s costing the state about $643 million this fiscal year.  With those revenues, lawmakers could target some tax credits in the direction of low- and middle- income Louisianans who pay a larger portion of their incomes (10% on average) than their rich counterparts in state taxes under the current structure.


State Tax Battles with Amazon.com Continue to Make Headlines


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Sales tax laws would be essentially meaningless if retailers were not required to collect the tax every time a purchase is made.  The opportunities for customers to evade the sales tax (either on accident, or on purpose) would be overwhelming.  Every state with a sales tax knows this — and as a result, the vast majority of retailers are legally required to collect and remit sales taxes.

Amazon.com and many other online retailers, however, are the major exception to this broad rule.  A 1992 Supreme Court case carved out a special exemption for any “remote sellers” that don’t have a “physical presence” in a state — like a store or warehouse.  The ruling has allowed the Internet to become an open highway for tax evasion. While customers shopping online owe the same sales tax they would if they shopped in a store, very few actually take the time and effort necessary to pay that tax.

This week, four states (California, Louisiana, Texas, and Vermont) made headlines for their attempts to limit the amount of sales tax evasion occurring through “remote sellers,” while a fifth state (Illinois) will soon have to defend its efforts to do the same in court.  By contrast, South Carolina lawmakers were recently bullied into granting Amazon an exemption from having to collect sales taxes for five years, despite the fact that it will soon have a “physical presence” in the state.

In Vermont, Governor Shumlin recently signed a so-called “Amazon law” that will eventually require all remote sellers partnered with affiliate companies physically based in the state to collect and remit sales taxes (see this ITEP report for more on “Amazon laws”).  Unfortunately, the bill was written so that it won’t take effect until 15 other states have enacted similar laws. 

Six states — Arkansas, Connecticut, Illinois, New York, North Carolina, and Rhode Island — have enacted such laws so far, and many more have given the issue serious consideration.  In the meantime, remote sellers like Amazon will be required to notify Vermont residents of the taxes they owe when making a purchase.

The California Assembly easily passed an Amazon law last week.  That legislation now goes back to the Senate, where a similar bill gained narrow passage last month.  Even if the Senate approves the Assembly’s version of the bill, however, it’s unclear whether Governor Brown will sign the measure.

Louisiana can now be added to the long list of states giving serious consideration to enacting an Amazon law.  The House Ways and Means Committee unanimously passed such a law in late-May, though opposition by Gov. Jindal makes it unlikely that it will be enacted any time soon.

In Texas, Gov. Perry recently vetoed a measure that would have required Amazon.com to collect sales taxes in the state, though the legislature may still try to enact the measure by inserting it into a larger bill that Perry is unlikely to veto. 

Unlike the true “Amazon laws” discussed above, the measure in Texas was designed to prevent Amazon from continuing to skirt its sales tax responsibilities by claiming that its Texas distribution center is actually owned by a subsidiary, and therefore does not amount to a “physical presence.”  The nearby photo is the actual sign in front of the Texas-based distribution center that Amazon claims it does not own.  

In Illinois, the Performance Marketing Association (PMA) has filed a lawsuit challenging the constitutionality of the state’s Amazon law.  The lawsuit is similar to one being pursued by Amazon against New York State.

And in South Carolina, Amazon.com has demanded, and received, a five year exemption from having to collect sales taxes on purchases made by South Carolinians, despite the fact that it plans to open a distribution center in the state (and will therefore meet the Supreme Court’s definition of having a “physical presence”). 

The granting of this exemption represents a stark reversal from just one month ago, when it was soundly defeated 71-47 in the House. 

Brian Flynn of the South Carolina Alliance for Main Street Fairness accurately summed up the unfortunate reality of this situation when he said that “with this economy, [Amazon was] in a good position to strong-arm legislators.”  Fortunately, the exemption is only supposed to last five years — though judging from Amazon’s past behavior, it’s reasonable to expect that the company will undertake an aggressive campaign to extend that five-year window.


Louisiana: Repeal of Income Taxes So Radical Even Governor Jindal Cannot Support It


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The Louisiana Senate is expected to debate a bill this week which would eliminate the state’s personal and corporate income taxes over a five-year period. By the time it’s fully phased in, the proposal would cost the state $4 billion annually.

The House Ways and Means Committee already approved separate measures to eliminate these same taxes. None of the legislation being discussed replaces the revenue that would be lost as result. Note that the state is already grappling with a $1.6 billion shortfall for the next fiscal year.

One might think that Governor Bobby Jindal, who signed into law several significant tax cuts and also signed Grover Norquist's "no new taxes" pledge, is the driving force behind the proposals.

But the plan to eventually create a $4 billion dollar hole in the state’s budget is apparently too radical even for Jindal. The Governor’s spokesman said of the proposal, “We're not going to take it seriously if they don't put together a spending plan.”

Some critics of Jindal on the right argue that some of the tax cuts he signed into law were measures that he initially opposed but then took credit for after he caved in to pressure to support them. Let's just hope that this time, anti-tax lawmakers really have found the limit of Jindal's fiscal irresponsibility.


Louisiana Coalition: "Pushing a Rock Up Hill"


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Louisiana’s Better Choices for a Better Louisiana Coalition is taking on Governor Bobby Jindal and other legislative leaders who have said they aren’t interested in increasing taxes. The Coalition recently unveiled their plan to increase taxes by $900 million to help close next year’s budget gap, which is estimated to be $1.6 billion.   

Eddie Ashworth, director of the Louisiana Budget Project, acknowledges that getting the legislature to raise taxes will be difficult, saying “I think we’re definitely pushing a rock up the hill.”

Still, the Coalition’s balanced approach to the budget shortfall, raising taxes and cutting spending, should appeal to any lawmaker who has ever claimed the title of "moderate." Also, one proposal included in the Coalition’s plan responds to the increasing momentum even in conservative circles for addressing spending in the tax code: a review of the state’s 400-plus tax exemptions, which cost about $7 billion annually.


New ITEP Report on States With Deductions for Federal Income Taxes Paid


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Earlier this week, the Institute on Taxation and Economic Policy released a new report, Topsy-Turvy: State Income Tax Deductions for Federal Income Taxes Turn Tax Fairness on its Head.  The report highlights an unusual tax break that currently exists in only six states (Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon): a state income tax deduction for federal income tax payments.  Collectively these states stand to lose over $2.5 billion in tax revenues in 2011 due to these tax breaks, with losses ranging from $45 million to $643 million per state.

Unfortunately, the high price tag of this tax giveaway yields remarkably little benefit to low-and middle-income families.  In states where the deduction is uncapped, the best off 1 percent of taxpayers enjoy up to one-third of the benefits from this provision, while the top 20 percent enjoy up to 80 percent of the benefits.  Wisely, several states have eliminated or scaled back this expensive and poorly targeted deduction in the last few years.  North Dakota, Oklahoma, and Utah have all eliminated the deduction, and Oregon lawmakers voted recently to further limit their deduction.

Deductions for federal income taxes seriously undermine the adequacy and fairness of state income taxes. These deductions also leave state budgets vulnerable to changes in federal tax law.  As the recession lingers and states look to enhance their long term fiscal solvency, elected officials in states with a deduction for federal income taxes paid have a real opportunity to close fiscal shortfalls in a way that has minimal impact on low-and middle-income families.

Read the Report


State Transparency Report Card and Other Resources Released


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Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.


Louisiana: New Coalition Launched in the Pelican State


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This week, a broad coalition of 18 Louisiana organizations launched Better Choices for a Better Louisiana. The group is interested in urging lawmakers to take a balanced approach to the state budget by cutting “tax code spending” and not just cutting public services funded through direct spending.

When announcing the coalition, the Louisiana Budget Project's Edward Ashworth called for "a more balanced approach to solving Louisiana's budget problems." Leaders of the group have already called upon legislative leaders to not pass any more tax breaks and to review the effectiveness of the state’s existing tax credits and exemptions.

 


Voters Embrace Higher Taxes at the Local Level


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Last week, the Associated Press took a close look at how local-level tax increases have fared on the ballot leading up to this week’s election.  Out of the 39 states surveyed by the AP, 22 of them held local primary elections or special elections where tax measures were voted on in 2010, and a whopping 19 of those states saw their residents approve more than half of all proposed local tax increases.

Some of the more interesting results highlighted by the AP include the approval of 83% of local tax increases in Louisiana, 72% in Ohio, and 66% in ArizonaKansas, Nebraska, and Washington also approved particularly high percentages of local tax increases.

It’s important to note that the AP study was conducted before this week’s election, and therefore doesn’t tell us how local measures fared on November 2.  Moreover, as the AP points out in their review, there is no single source for information on the results of local ballot measures, and even most states fail to publicize local results in a centralized location. 

Unless and until a study of this week’s local measures is completed, we’ll be left to wonder whether trends from earlier this year have continued to hold.  If they have, there could very well be many more stories of local ballot successes like this one in Colorado.


New 50 State ITEP Report Released: State Tax Policies CAN Help Reduce Poverty


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ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.


New ITEP Report Examines Five Options for Reforming State Itemized Deductions


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The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.


Cock-a-Doodle-Do in Louisiana


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Earlier this month the Louisiana Budget Project released a report on state income tax cuts that says "Louisiana’s fiscal chickens are coming home to roost." Put in a less entertaining way, Louisiana simply doesn't have enough revenue to meet the needs of Louisianans and this is likely to be the case for many years to come unless lawmakers act quickly.

One reason for the state's woes is the legislation enacted in 2007 and 2008 that repealed important parts of a 2002 tax reform, commonly referred to as the Stelly plan, after its sponsor, Rep. Vic Stelly. The plan eliminated the state sales tax on utilities, food, and medicine and imposed tax increases on the better-off. The package was initially revenue-neutral, but over time it would have created more revenue for the state.

The report finds, "The revenue loss caused by the Stelly rollbacks, coupled with the impact of the national economic downturn and shortfalls in mineral revenues, leave Louisiana with insufficient revenues to maintain services at current levels at a time of growing needs." LANO estimates, with ITEP's help, that if the Stelly provisions hadn't been repealed, the state might not have faced a budget shortfall in 2010.

This week the Oklahoma Policy Institute released a report urging, among other things, that one of the state’s more ridiculous tax breaks be eliminated — specifically, the state income tax deduction for state income taxes.  This deduction was created not as a result of careful consideration and debate among Oklahoma policymakers, but rather as an accidental side-effect of the state’s “coupling” to federal income tax rules.  And as the New Mexico Legislative Finance Committee politely points out, while the deduction may make some sense at the federal level, the rationale for providing it at the state level is “less clear.”

Citing figures provided by ITEP, the Oklahoma Policy Institute notes that only one out of four Oklahomans would be affected by eliminating this deduction, and roughly 58% of the overall tax hike would be borne by those richest 5% of Oklahomans.  This is a predictable result of the deduction only being available to itemizers.  In total, the state could collect an additional $118 million in revenue each year by eliminating the deduction — revenue that could go a long way toward preserving important public services.

State income tax deductions for state income taxes have been receiving a growing amount of attention.  Last year, Vermont limited its deduction to a maximum of $5,000, while just last week New Mexico Governor Bill Richardson signed a budget eliminating his state’s deduction entirely.  The Georgia Budget and Policy Institute (GBPI) also highlighted the benefits of eliminating this deduction in a policy brief released just a few weeks ago.

In total, seven states currently offer this deduction: Arizona, Georgia, Hawaii, Louisiana, Oklahoma, Rhode Island, and Vermont.  Eliminating the deduction in each of these states is long overdue.


ITEP's "Who Pays?" Report Renews Focus on Tax Fairness Across the Nation


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This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.


Tax-Free Gun Days Starting to Catch On


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A little over a year ago, we told you about a ridiculous law in South Carolina that provided for a sales tax "holiday" on purchases of handguns, rifles, and shotguns (later ruled unconstitutional for technical reasons, though only after the holiday had already taken place).  Little did we know then that the idea would actually catch on.  Louisiana enacted a similar "holiday" last month, upping the ante by exempting not only handguns, rifles, and shotguns, but also bows, crossbows, hunting knives, arrows, ammunition, rifle scopes, holsters, and much more.  Unbelievably, the idea is reportedly receiving attention in Texas and Kentucky as well.

The Louisiana holiday is scheduled to occur each year on the first consecutive Friday through Sunday in September.  During that weekend, neither state nor local sales taxes will be collected on a variety of items the legislature has declared worthy of being included in its "Second Amendment Holiday." 

But it's not hard to imagine how many of those exemptions will pose serious administrative problems.  With some exempt items, such as tree stands, there seems to be little room for confusion.  In other cases however, the state has decided to exempt a variety of multi-purpose items based on whether they were designed, marketed, or even simply purchased for use while hunting (e.g. some items must be designed with hunting in mind, while others need only be purchased by somebody with the intent to hunt).  Items falling into this category include off-road vehicles, animal feed, boots, bags, binoculars, chairs, belts, and various types of camouflage clothing. 

Apparently, according to this list of tax-exempt items, you can look at a bird through tax-free binoculars, but only if you intend to kill it.  Ensuring that these items are really purchased by individuals with "Second Amendment" intentions will no doubt prove impossible.

The bill's official fiscal note hints at a further complication involved with this holiday.  Specifically, it explains that the state will pay retailers $25 for each cash register they re-program to calculate "Second Amendment" items as being tax-free.  On top of that, the state will pay $25 more when the register is re-programmed, back to normal, at the end of the holiday.  Official estimates are that it could cost Louisiana taxpayers up to $100,000 to help retailers make the necessary modifications.  Since the holiday is only expected to result in $263,000 per year in tax savings, this $100,000 cost is not a trivial concern.  And keep in mind, Louisiana taxpayers not purchasing weapons will be helping to pay this $100,000 tab to benefit their soon-to-be well-armed neighbors.

The inevitably complicated nature of sales tax holidays is just one of their many flaws -- as explained in this ITEP Policy Brief.  But despite all their problems, at least typical "back-to-school" sales tax holidays can be interpreted as a misguided attempt to make life easier for families with school-age children.  When it comes to these "Second Amendment Holidays," however, it's hard to see what exactly lawmakers are trying to gain, other than a pat on the back from the NRA.


Louisiana: There is Such a Thing as a Free Lunch


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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.


Three States Focus on Eliminating Regressive Deduction to Raise Much Needed Revenue


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We've recently highlighted a variety of progressive revenue raising options gaining serious attention in New York and Wisconsin. This week we bring you yet another idea that's recently been the subject of debate, though this one applies to fewer states. Those seven states still offering income tax deductions for federal taxes paid (i.e. Alabama, Iowa, Missouri, Montana, North Dakota, Louisiana, and Oregon), should immediately repeal, or at the very least dramatically scale back, that deduction.

The federal income tax deduction takes what is perhaps the best attribute of the federal income tax -- its progressivity -- and uses it to stifle that very attribute at the state level. Since wealthy taxpayers generally pay more in federal taxes than their less well-off counterparts, allowing taxpayers to deduct those taxes from their income for state income tax purposes is a gift to precisely those folks who need it least. And since most state income tax systems possess a degree of progressivity, those better-off taxpayers who face higher marginal tax rates are benefited even more by being able to shield their income from tax via this deduction.

Iowa Governor Chet Culver most recently drew attention to this problem while urging lawmakers this week to end the deduction. The idea has also recently garnered attention in Missouri, where ITEP recently testified on a bill that would, among other changes, eliminate the deduction. Finally, another bill making its way through the Alabama legislature seeks to end the deduction for upper-income Alabamians.

With three of the seven states that still offer this deduction considering its elimination, this is definitely one progressive policy change to keep an eye on.


Gloom & Boom


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States' collective fiscal outlook appears to be quite dim and could get even darker in the months ahead according to a report released this week by the National Conference of State Legislators (NCSL). The report notes that, in the aggregate, states experienced a $40 billion budget gap for fiscal year 2009, a chasm that has been bridged largely through reductions in spending.

Not every state's budget is shrouded in gloom, however. Some states derive significant revenue from severance taxes (taxes imposed on the extraction of natural resources like oil and natural gas) and have economies closely tied to these industries. These states, Louisiana, North Dakota, and Wyoming for example, are enjoying substantial budget surpluses.

Given the volatility of energy markets, these surpluses are likely a temporary phenomenon, but that hasn't stopped states from considering and enacting tax cuts that would permanently reduce revenue. Earlier this year, Louisiana briefly weighed the idea of repealing its income tax altogether, only to settle on an oh-so-modest annual cut of $300 million. North Dakota has not only revived its property tax debate from a few years ago, but may also place on this November's ballot a measure that would slash the personal income tax by 50 percent and the corporate income tax by 15 percent. In this context, a plan backed by West Virginia Republicans to completely exempt groceries from the state sales tax appears far more reasonable in scope - and would certainly help to improve the progressivity of the state's tax system. However, it would still likely leave the Mountain State with inadequate revenues once oil and gas prices come back to earth.

Perhaps the most responsible - and fair - approach to surpluses generated by skyrocketing severance tax revenue comes from New Mexico, where Governor Bill Richardson this past week put forward a proposal to dedicate the majority of the state's projected $400 million surplus to one-time tax rebates and to highway construction. Richardson's proposal does contain some permanent changes in tax law, such as an expansion of the state's working families tax credit, but they appear to be targeted towards those low- and moderate-income taxpayers who are facing the greatest challenges from the nationwide foreclosure crisis and from rising fuel and food prices.


Louisiana: Nearly to Stelly and Back


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Policymakers in Louisiana this week took one of the final steps towards enacting an unfair and unaffordable personal income tax cut. On Wednesday, the House of Representatives unanimously approved SB 87, a measure that would repeal one more element of the landmark 2002 Stelly Plan, returning the level at which a married couple's income becomes subject to the state's top income tax rate of 6 percent from $50,000 to $100,000. (Single people will also derive some benefits from the bill, as it would push back the start of their top bracket from $25,000 to $50,000.)

As new reports from the Louisiana Budget Project (LBP) and the Institute on Taxation and Economic Policy (ITEP) show, however, SB 87 not only ignores the Bayou State's perilous long-term fiscal condition, but also the impact of its current tax system on low- and moderate-income Louisianans. While Louisiana may be temporarily flush with revenue due to escalating oil prices, as LBP points out, general fund revenue is expected to decline by 1.5 percent on average over the next four years; indeed, the Public Affairs Research Council of Louisiana further notes, "even if oil prices remain high, state revenues are projected to drop by $377 million from 2009 to 2010". Cutting personal income taxes by $300 million or so, as SB 87 would do, would only add to Louisiana's long-term fiscal woes.

SB 87 also directs the vast majority of its benefits to the most affluent taxpayers in the state, when those taxpayers already pay a much smaller portion of their incomes in taxes than working Louisianans do. Roughly 75 percent of the tax cut that would be spawned by SB 87 would go to the wealthiest fifth of Louisianans, while taxpayers in the bottom two-fifths of the income distribution would see virtually no change in their taxes. Conversely, as ITEP's latest analysis demonstrates, the poorest 40 percent of non-elderly Louisianans paid upwards of 12 percent of their incomes in state and local taxes in 2006, while the very best-off one percent paid the equivalent of just 6.4 percent of their incomes in state and local taxes. Of course... and leaving questions of fiscal responsibility aside -- far more progressive options for cutting taxes (such as reducing Louisiana's sales tax rate or lowering its bottom income tax rate) were available to the members of the Louisiana House, if only they had chosen to pursue them.

The House's version of SB 87 must now be reconciled with the version passed by the Senate earlier this year, but few should expect this to improve the measure any. The version passed by the Senate ultimately would have repealed the income tax in its entirety, making the House's approach seem positively responsible and equitable in comparison.


Building a Better Tax Cut in Louisiana


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Last week, Louisiana's House Ways and Means Committee approved a measure (SB 87) to repeal one more element of the state's 2002 "Stelly Plan," marking further retreat from that landmark legislation's principles of tax fairness, adequacy, and stability. As reported by the Ways and Means Committee, SB 87 would raise the income levels at which married couples begin to pay the state's top 6 percent income tax rate from $50,000 to $100,000 (and from $25,000 to $50,000 for single people). As a result, the measure would reduce annual income tax revenue by close to $300 million per year, but would only cut taxes for the one-third of Louisianans who currently pay at the 6 percent rate. In fact, more than a quarter of the bill's benefits would accrue to the wealthiest 5 percent of Louisianans.

While the Committee's version of the measure is certainly an improvement over the version adopted by the Senate -- which would have repealed the state income tax altogether -- less expensive, more fair, and farther reaching alternatives are available.

A new analysis, jointly released by Louisiana 's Agenda for Children and the Institute on Taxation and Economic Policy, offers one such alternative. It shows that, by expanding the state's bottom income tax bracket -- instead of shrinking its top bracket -- and by strengthening its EITC, Louisiana policymakers could cut taxes for twice as many people... but at half the cost of SB 87. Such an alternative would lower the taxes paid by slightly more than three-quarters of Louisianans, while reducing annual income tax collections by roughly $130 million. The alternative would not only provide a larger average tax cut to middle-income Louisianans, but would also ensure that the bulk of the tax reduction it would produce would go to the bottom 60 percent of the income distribution. Other alternatives -- such as reducing Louisiana 's lowest income tax rate or lowering the state's sales tax rate -- would also be preferable to SB 87 from a tax fairness perspective

Given the highly regressive nature of Louisiana's current tax system -- as of 2006, the poorest 20 percent of Louisianans faced an effective tax rate that was more than twice that of the richest 1 percent -- the need for such an equity-enhancing alternative is clear. It's now up to Louisiana's elected officials to respond.


Lawmaker Says His Deciding Vote to Abolish Income Tax Was Just Being "Cutesy"


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In the eyes of most fiscal policy experts, there are a few commonly accepted principles for judging tax policy -- neutrality, horizontal and vertical equity, and enforceability, to name a few. Apparently, in the eyes of one Louisiana legislator, "cutesy" now ought to be added to the list.

As the New Orleans Times-Picayune reported earlier this week, Sen. Joe McPherson apologized to his colleagues for casting the deciding vote in favor of an amendment to repeal the state's income tax, which currently yields nearly $3 billion per year. It seems that the Senator expected the amendment to lose, but "wanted to be on the record as doing away with income taxes." He later owned up to being "cutesy" with his vote.

The bill that Senator McPherson and his colleagues voted to amend would have repealed yet another element of the 2002 Stelly plan, which substantially improved the fairness of Louisiana's tax system. Just last year, Pelican State lawmakers voted to reinstate the "excess" itemized deductions that had been eliminated as part of the Stelly plan, a move that cost the state more than $150 million in tax revenue annually and that benefits only the wealthiest 20 percent of taxpayers.

The bill being debated now was intended to raise the income tax brackets that had been lowered under the Stelly plan. It would have (before being amended) reduced state revenue by roughly a quarter of a billion dollars per annum and, despite the claims of proponents, yet again help the most affluent. As the Times-Picayune notes, the bill's proponents portray it as a prototypical "middle-class tax cut", but preliminary estimates from the Institute on Taxation and Economic Policy indicate that more than 70% of the benefits from changing Louisiana's income tax brackets would accrue to the wealthiest fifth of taxpayers.


Film Tax Credit Corruption in the Pelican State


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Louisiana is the number three film producing state in the nation, but behind the multi-million dollar films and flashy actors lies the dirty side of what can only be called the state's tax credit industry. As explained by an article in the magazine Fast Company, the FBI is investigating whether or not a company was improperly granted film production tax credits, which in Louisiana can be converted to cash by resale to another party that pays state taxes. One credit granted was worth more than the entire budget of the film produced. In 2002, when the state first developed these credits there wasn't even a system in place for the independent auditing of expenditures.

Louisiana's former Film Commissioner, Mark Smith, is currently under investigation and, in a perhaps predictable twist, now works for the movie industry. The lack of oversight is not the only reason to question the whole idea of tax credits for film production. Their impact on economic development is questionable, particularly since nearly all states now have some type of film tax credit.


Louisiana Enacts EITC and Other Tax Changes


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Louisiana's 8-week legislative session came to a close late last month and Governor Kathleen Blanco has signed a variety of bills into law. HB 365 allows state income tax filers to claim the same itemized deductions they claim on their federal returns. The problem is, only the wealthiest 20 percent of Louisianans itemize. The estimated $157 million the provision will cost could be put to better use. SB 3 provides a "sales tax holiday" on the first Friday and Saturday in August and applies to the first $2,500 spent by consumers.The bill makes the holiday permanent and was introduced as a "back-to-school" benefit.The only improvement in tax fairness isSB 341, a progressive bill that provides for a refundable state Earned Income Tax Credit (EITC), equal to 3.5 percent of the federal EITC.This will distribute $40 million in refunds to low-income Louisianans (about 29 percent of all filers) on Tax Day.


Louisiana Legislature Sends Its Good and Bad Ideas to Governor


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Louisiana's 2007 legislative session came to an end yesterday. Fueled by large projected budget surpluses, lawmakers spent the session pondering all sorts of options for tax cuts, ranging from smokestack-chasing tax giveaways to tax breaks for struggling artists. In the end, lawmakers took an important first step towards tax fairness by enacting a refundable Earned Income Tax Credit, thanks in part to the work of the Louisiana Budget Project. But legislators took a step backwards as well, expanding the ability of the wealthiest Louisianans to claim the same itemized deductions they took on their federal tax forms. This move is estimated to benefit only 20 percent of Louisiana families. Left to be seen is whether Governor Kathleen Blanco might veto these high-end cuts.


Earned Income Tax Credits Advance Around the Nation


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Over the past few weeks, three more states have taken steps towards helping low-wage workers and their families by means of the earned income tax credit (EITC). In Delaware, the Senate Revenue and Taxation Committee recently approved a measure that would make the state's existing EITC refundable, meaning that individuals and families who owe less in personal income taxes than the value of their EITCs would receive refund checks to help offset other taxes and to make it easier to make ends meet. In Oregon, Republican and Democratic members of the House Revenue Committee have put forward a proposal that would raise that state's EITC from 5 percent of the federal EITC to 12 percent. As the Eugene Register-Guard observes this proposal would help to achieve a vital goal - eliminating income taxes on working families living in poverty in Oregon. Lastly, the Louisiana Senate has passed legislation that would create a state EITC equal to 5 percent of the federal EITC. This report from the Louisiana Budget Project details the positive impact that such a credit would have.


Tax Holiday for Hurricane Help?


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June brings the start of a new hurricane season, and this year some Gulf states are turning to a new tool to try to help residents cope: the tax code. This week is host to Florida's third annual sales tax holiday on hurricane preparedness supplies. Louisiana offered a temporary sales tax holiday in the aftermath of Hurricane Katrina last year, and now some lawmakers are pushing to make it an annual event. However, it is not known how much, if any, benefit shoppers receive from such sales tax holidays. Why would a store offer a 10% discount when shoppers are coming in to avoid paying the four percent state sales tax? Given the serious nature of hurricanes, the burden of proof is on lawmakers to show that this holiday will do what they say it will. People in the Gulf states deserve more than a three-day gimmick.


Race-to-the-Bottom: Economic Development "Incentives"


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Last week there were three states offering competing tax incentives for a new ThyssenKrupp steel mill. Now there are two; ThyssenKrupp has taken Arkansas out of the running, leaving Alabama and Louisiana as its final two candidates. In a press release announcing the move, the company explained its rationale for dumping Arkansas: "geological conditions, energy costs and logistical disadvantages." Notably absent from its explanation: tax breaks.

And elected officials in the two remaining states seem to agree that non-tax factors set one state apart. Louisiana Governor Kathleen Blanco boasts and, Alabama Governor Bob Riley openly admits, that Louisiana has geographic advantages that Alabama can't match.

But Riley and some state lawmakers are pushing for a special legislative session later this month that would be devoted entirely to creating a new fund for tax incentives for ThyssenKrupp and other companies the state is currently courting. If this sounds like a devious subversion of market forces, it is ... but Louisiana already did the same thing back in December, creating a $300 million fund to court the steelmaker.

How can states short-circuit this self-destructive competition of tax giveaways? Lessons might be learned from efforts by European Union members to prevent tax competition that distorts market forces, which culminated this week in an EU statement that Switzerland must curb its corporate tax giveaways.


Louisiana's 2006 Special Legislative Session: Assessing Income Tax Reform Options


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ITEP Report: Louisiana's 2006 Special Legislative Session - Assessing Income Tax Reform Options

Louisiana lawmakers currently face a pleasant dilemma: how to dispose of a short-term budget surplus exceeding $2 billion. This analysis looks at the overall fairness of Louisiana's tax system, and assesses the impact of two proposals on Louisiana tax fairness.

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