Revenue Secretary Richard Nelson outlined his plan on Wednesday to reduce Louisiana’s graduated personal and corporate income tax rates into a single ‘flat’ rate. According to Nelson, the resulting revenue loss would be partially offset by ending tax exemptions and extending the sales tax to services that are currently untaxed. These exemptions, even ineffective ones, such as the Quality Jobs Program that cost the state $150 million per year and only returns 11 cents in tax revenue for every $1 spent, are closely guarded. The Times-Picayune | Baton Rouge Advocate’s Tyler Bridges reports:
Susan Bourgeois, secretary of Louisiana Economic Development, and three of her senior aides preceded Nelson and extolled the benefits of two corporate tax breaks that in theory could be reduced or eliminated to help pay for moving to a flat tax. While Bourgeois kept a fairly neutral tone in describing them, her agency’s deputy secretary, Anne Villa, flatly said, “Quality Jobs is a great incentive.” …… The different messages from the Louisiana Economic Development officials and Nelson prompted state Sen. Adam Bass, R-Bossier City, to ask whether they were on the same page.
Bridges explains that across-the-board tax cuts are not the only option to solving the state’s looming fiscal cliff:
Or legislators could reduce tax rates and keep two taxes that are scheduled to expire on June 30. One is a temporary .45-cent sales tax, and the other is a 2% tax on business utilities. Both were approved in 2018 by then-Gov. John Bel Edwards, a Democrat, and the Republican-majority Legislature. … Louisiana already has a regressive tax system, where people who earn less than $18,000 pay 13.1% of their family income in taxes while people who earn over $552,000 pay only a 6.5% tax rate, according to the Institute on Taxation and Economic Policy, a progressive nonprofit in Washington, D.C.
The proposed income-tax cut would cost the state more than $1.1 billion per year in lost revenue, according to a new analysis by the Institute on Taxation and Economic Policy. The largest share of the tax cut would go to the top 1% of Louisiana income earners. A new issue brief from Invest in Louisiana’s Paul Braun breaks down ITEP’s analysis and explains why a flat tax is not the answer.
Taxpayers at the top 1% of household income – those with an average annual income of $1.8 million – would get an average tax cut of $10,152. Middle-income filers, with an average household income of $53,700, would receive a far more modest tax cut of $287 – or about $24 per month. Louisiana already faces a “fiscal cliff” due to taxes that are expiring in 2025, and a $1.1 billion tax cut would make the cliff deeper and force policymakers to make deep cuts to vital programs or raise other taxes to bridge the gap.
What interest rate cut means for state budgets
The Federal Reserve’s move to cut interest rates by 0.5 percentage points will lower borrowing costs for state governments looking to finance large, expensive projects, such as infrastructure upgrades. Pew’s Justin Theal and Liz Farmer explain other ways that state budgets could be affected by the reduction:
More affordable borrowing often leads to increased consumer spending and business investments, which in turn yield higher sales and corporate tax collections…. In addition, the stock market, which typically performs well in lower-rate environments, could contribute to a revenue boost through higher personal income tax collections in states that tax capital gains and by bolstering pension fund investments.
Theal and Farmer explain how lower interests rates could negatively impact revenue generated from budget reserves:
However, lower interest rates can also come with trade-offs, particularly for states with large budget reserves. Over the past decade, most states have built up record-high rainy day funds and other reserves, many of which generate interest income that provides a steady revenue stream to support state budgets. … But as interest rates decline, so too will that income.
Expand free school meals
Lawmakers and advocates testified at a U.S. Senate Agriculture subcommittee hearing on Wednesday on the numerous benefits of expanding free school meal programs. Last year, 47.4 million people, including 683,110 Louisianans, lived in food insecure households. States Newsroom’s Shauneen Miranda reports:
Advocates say these programs play a crucial role in helping to reduce child hunger and urged the panel to expand them. “School lunch should always be free and definitely free of judgment,” said Sen. John Fetterman, who chairs the Subcommittee on Food and Nutrition, Specialty Crops, Organics, and Research. “Honestly, it shouldn’t be a conversation — it would be like asking the kids to pay for the school bus every morning or to pay for their own textbooks at school,” Fetterman said.
Louisiana is participating in a federal program that provides low-income children with food during the summer months. Parents and guardians in the state can still receive grocery money through the Louisiana SUN Bucks program, but the deadline to apply is Friday, Sept. 20. Learn more and apply here.
GOP governors oppose international pandemic plan
Twenty-four Republican governors, including Louisiana’s Jeff Landry, penned a statement last month announcing their opposition to a global agreement aimed at preventing and responding to future pandemics. Route Fifty’s Kaitlyn Levinson explains how the pushback to the World Health Organization’s proposal is more about culture-war politics than ‘freedom’ or public health:
Research shows clear divides among Democrats and Republicans on their views of the nation’s response to the COVID-19 pandemic.. … While it’s not uncommon for U.S. governors to weigh in on international affairs, [director of the National Center for Disaster Preparedness at Columbia University, Jeffrey] Schlegelmilch said, the governors’ statements serve more as a political move than an evidence-driven analysis of the proposed public health agreement.
Number of the Day
32% – Percentage share of Louisiana residents who have any debt in collections. (Source: Urban Institute)