Next year is shaping up as a pivotal year for tax policy at both the state and federal level. While Louisiana policymakers grapple with the upcoming “fiscal cliff,” the next president and Congress will have to deal with the looming expiration of the costly and ineffective 2017 tax cut law. Former President Donald Trump wants to renew the existing tax cuts – which primarily went to wealthy people and corporations – and pile on additional cuts. Vice President Kamala Harris, on the other hand, would raise nearly $5 trillion over the next decade by taxing wealthy people and corporations more while leaving tax cuts in place for people making less than $400,000 per year. The New York Times’ German Lopez breaks down the competing plans and their impact on voters:
A middle-class household with $80,000 in income would gain $1,700 after taxes under Trump’s plan and $2,200 under Harris’s, according to the Penn Wharton Budget Model. A household in the top 0.1 percent, with $14 million in income, would gain $377,000 under Trump and lose $167,000 under Harris. Those numbers, however, do not include the impact of tariffs. If they are included, Trump’s plan would actually reduce a middle-class household’s after-tax income by $1,700, the Peterson Institute for International Economics found. Wealthy households’ after-tax income would still increase. Since Harris hasn’t proposed new tariffs, her numbers are unchanged.
An analysis from the Penn Wharton Budget model shows Trump’s tax plan would add $5.8 trillion to the federal deficit over 10 years, while Harris’ plan would add $1.2 trillion.
Where did “pet project” dollars go?
Louisiana legislators earmarked $113 million in this year’s state budget for projects, programs and nonprofit organizations in their own districts. The money – often derided as “pet projects” by critics of the process – is paying for new water meters, park upgrades, food banks, youth programs and other programs and projects that legislators deem important. The Times Picayune | Baton Rouge Advocate’s Meghan Friedmann reports that the money wasn’t spread evenly across the state, as some parishes got far more than others on a per-capita basis:
Of the $113 million, about $8 million went to statewide or national organizations and $4 million went to multi-parish initiatives. Another $700,000 went to organizations The Advocate | The Times-Picayune was unable to identify. The remainder — about $100 million – went to parish-specific projects and governments or nonprofits based in those parishes. A handful of allocations were not included in the analysis because Gov. Jeff Landry vetoed them.
Legislative earmarks are a part of the political process, and it’s hard to blame lawmakers for wanting to show their constituents a tangible benefit of their work in Baton Rouge. This is especially true for rural districts that lack adequate revenue streams:
Jan Moller, director of Invest in Louisiana, a progressive policy group in Baton Rouge, said part of a legislator’s job is to advocate for their constituents. “You shouldn’t fault them for trying to help that area,” he said. And even if they receive a disproportionate amount of funding, in rural areas without tax bases to pay for infrastructure projects, state aid may be all the more important, Moller said. (McFarland said Jonesboro cannot afford to replace its own water meters.)
End of the state revenue wave
A strong post-pandemic recovery, combined with federal relief dollars, produced better-than-expected tax collections for states across the country, including in Louisiana. But the supercharged tax revenue has cooled and federal pandemic aid has expired. Pew’s Melissa Maynard explains the “revenue wave” and provides guidance for how state leaders can prepare for an inevitable budget downturn:
As federal aid winds down and tax relief and spending measures take effect, policymakers must consider how much of recent tax revenue growth may have been one-time in nature. Some states have forward-looking practices that help anticipate a revenue shortfall before it materializes and inform policymakers about how best to prepare for a downturn. And over the long term, by making a regular practice of distinguishing between temporary and recurring revenue trends, states can minimize risk and more confidently commit to both one-time and permanent expenditures and tax cuts.
From 2020 to 2022, 15 states, including Louisiana, saw tax revenue come in below pre-pandemic trends. Maynard explains possible reasons for this:
Revenue in these states came in below pre-COVID-19 growth trends for a variety of reasons, including tax cuts, weak economic growth, volatile energy prices, and unusually high revenue growth leading up to the pandemic.
Backwards approach to juvenile justice
Access to high-quality early care and education programs have been shown to improve education outcomes and reduce crime. Unfortunately, Louisiana legislators cut state support for these critical programs while they increased spending on youth prisons and jails. Annalisa Smith, an advocate for Black youth and New Orleans native, in a guest column for the Louisiana Illuminator, pushes back on Louisiana’s backwards approach to juvenile justice:
In an individualistic view of crime, we ignore that the young people who committed crimes are Louisianians who have been watching their state crumble as they grappled with inadequate money, education, and chances to be better. … If we want to be better in Louisiana, we have to put in the work, and putting in the work doesn’t mean opening new youth incarceration facilities. We have to start with investing in communities of color and in schools as much as we invest in our prisons, because if we’re only spending $11,000 for a child to learn, we can’t justify spending over $150,000 for them to be traumatized in a cell (No Kids in Prison).
A new state law requires 17-year-old children to be treated as adults in the state’s criminal legal system. State lawmakers approved the change despite no evidence that it would reduce crime.
Number of the Day
73.1% – Homeownership rate for white households in 2022, compared to just 44.3% for Black families. This racial disparity exists because of the legacy of racist housing policies, such as redlining and racial covenants. (Source: Urban Institute)