Invest in Louisiana Executive Director Jan Moller provided the following testimony to the House Subcommittee on Ways and Means to study State Tax Structure on Thursday, Oct. 3, 2024.
We appreciate the invitation to talk about Louisiana’s tax structure, and the role that taxes and state policies play in building a strong state economy.
I’m Jan Moller and I’m the executive director of Invest in Louisiana. We are a policy research and advocacy organization that looks at state policies and how they affect low- to moderate-income Louisianans.
I am not an economist. Rather, my knowledge on this subject comes from closely observing, and writing about, the tax and budget discussions at this Capitol for the past 21 years – through good times and bad times, economic booms and busts.
Before coming to Louisiana I had the fortune – or misfortune – of covering politics and policy as a young reporter in Washington, where much of my work involved tracking the federal budget.
I was attracted to state politics and state budget and tax policy for a simple reason: There is a basic honesty that goes into the work you do. Louisiana has to balance its budget every year. If you want to spend a dollar to educate a child, build a road, or provide health care for someone who can’t afford it on their own, you have to raise that dollar.
(Sometimes there are exceptions, such as when money flows in from the federal government after recessions or disasters; or when governors use unsustainable tricks and gimmickry to balance the budget. But such things only work for a year or two and are not a long-term plan).
While the groups represented here today have different views on the ideal state tax structure, and the level of spending that those taxes should support, we all have some things in common: We want Louisiana’s economy to thrive, and we especially want for the people who live here to have the opportunity to reach their full economic potential.
For us that means that the government and the private sector have to work together, because both sides are critical to a strong economy. An economy depends on access to high quality public schools, from kindergarten through college, health care that’s accessible and affordable, good roads and bridges, and communities that are safe and have good public amenities like public transportation, parks, libraries and other common spaces.
These things cost money. We talk about tax policy because taxes are the way we raise money to invest in our citizens and our communities. The money we raise in taxes doesn’t disappear from the economy. They are a key part of the economy, just like the private sector. And when we evaluate what a good tax system looks like, we have a few criteria: Fairness. Adequacy, Sustainability.
Fairness: What do we mean by that? For us it means that the people and institutions that can afford to pay the most should actually pay the most, when measured as a percentage of income. That is how it works at the federal level. But not in Louisiana. The Institute on Taxation and Economic Policy ranks Louisiana as the 10th most regressive tax system in the nation.
In practical terms, that means households in the poorest one-fifth – who have an average income of $11,000 per year – pay 13.1 percent of their income in state and local taxes. Households in the highest-earning 1 percent – with average incomes of $1.1 million – pay just 6.5 percent of that income in state and local taxes.
As we think about fairness, any reforms to our tax structure should look to make this equation more balanced. We can do that by having an income tax system that maintains a progressive rate structure, so that income people earn above a certain threshold is taxed at higher rates. We can do it by ensuring that large, profitable corporations pay their fair share of taxes, and aren’t easily able to move those profits out of state to avoid taxes in Louisiana. And we can do it through tax credits such as the Earned Income Tax Credits, which provide extra income for people with low incomes, or by establishing a Child Tax Credit at the state level like 15 states and the District of Columbia have already done.
Adequacy. An effective tax system needs to raise enough revenue to meet the basic needs of citizens; to make the kind of investments necessary to build a strong economy. In Louisiana, the tax system we have does not raise enough revenue to meet those basic needs. A few years ago this legislature’s chief economist, Greg Albrecht, did a study to look at the size of state government in Louisiana compared to other states.
That study is still on the fiscal office website, and the basic finding is this: State spending makes up about 7 percent of the average state’s GDP – a finding that’s pretty consistent over time. In Louisiana, over a two-decade period that was studied, state spending made up about 6.7 percent of the overall economy – placing us 17th from the bottom.
The Tax Foundation has done similar research, and reached similar conclusions. Per-capita tax collections in Louisiana were $3,162, placing us 8th from the bottom. Compared to other states, Louisiana is particularly low in per-capita personal income-tax collections. At $962 per person, our income taxes in Louisiana are 37th in the country among the 41 states that tax income from wages.
By most measures, we are not raising enough revenue to address the needs we have – let alone the things we should be investing in if we want to truly move our state forward. Public school teachers have not received a permanent raise in three years. Our promising investments in early childhood education, which were reduced this year, are not nearly enough to meet the demand from families who simply want a safe, affordable learning environment for their kids while they go to work. Higher education still has not recovered from the budget cuts that were imposed during the past decade.
In the past lawmaking session, this legislature made several new financial commitments that are likely to make budgeting more difficult in the coming years. The changes to the criminal justice system as a result of making parole and probation more difficult to obtain will result in higher incarceration costs, while the new education savings accounts that will underwrite private school tuition for Louisiana students will add to the overall cost of education.
Sustainability: This is an area where the governor is right. For many years now – going back to the early 1980s, when the bottom fell out of the oil industry – Louisiana’s tax structure has often lurched from crisis to crisis, often of the Legislature’s own making. We’ve solved these problems by creating a state lottery, bringing in casino gambling, with temporary federal dollars that came in after Hurricane Katrina and other natural disasters, and In the 1980s and 90s, and now for the past six years, with temporary taxes that either have to be renewed every few years, or else important services will be cut.
Whatever changes Louisiana elects to make to the tax system, our hope is that they would be sustainable, and avoid these self-created crises that seem to arise every few years. And our hope is that you would avoid putting things like income-tax rates in the constitution, where they are much harder to change.
A tax structure works best when it raises sustainable revenue from year to year, and leaves policymakers with the flexibility to make adjustments as economic conditions change – for example, cutting taxes during times when the economy and revenues are booming, and raising them when revenue might be needed to avoid cuts.
Finally: A note about simplicity, and a note about dynamic scoring.
Simplicity: One of the things that you hear about a flat tax is that it’s supposedly very simple, as if having three income-tax bracket makes the process confusing and unduly complicated. Paying your income taxes can indeed be a complex undertaking. But the hard part about income taxes is figuring out your net taxable income, after accounting for all the deductions, credits and other benefits you might be eligible to receive.
Once you’ve determined your net taxable income, figuring out what you owe is something my 10-year old could calculate. But if you don’t feel up to the challenge, there is a table in the back of the book.