Friday, May 11, 2007

The Advocate: Keep the Stelly Plan

In the wake of new poll results showing that Louisianans don't view new tax cuts as a big priority, many are wondering why elected officials are going against their constituents' preferences by pushing for tax cuts. Today the editorial board at the Baton Rouge Advocate goes one step further. If you're going to cut taxes, they ask, why would you repeal the progressive 2002 income-tax-for-sales-tax swap known as the "Stelly plan" in particular? After questioning "the political wisdom of railing against a tax policy change that left the vast majority of taxpayers better off," the Advocate comes up with a theory:
Part of it is human nature: People benefit a little bit every day from the sales taxes eliminated in 2002 by passage of the Stelly plan. But everybody notices when they write a larger check for state income tax. Lawmakers are responding to aggrieved, mostly affluent constituents who pay big income tax bills.
This is a commonly cited problem with the sales tax: even the low-income folks who are hit hardest by it often don't notice, because they pay a nickel here and a nickel there rather than one big lump sum. If people don't notice the sales tax when they pay it, it's easy to understand that they wouldn't notice when (as a result of the Stelly sales tax cuts) they're not longer paying it. And income taxpayers who are accustomed to writing off their itemized deductions on state income tax returns will very likely notice when (also as a result of the Stelly reforms) they're no longer able to.

But "the squeaky wheel gets the grease" isn't much of a principle for tax policy. The Advocate suggests that if lawmakers do find they can afford tax cuts, they should tailor these cuts in ways that could actually affect the economy:
If tax cuts are called for, why should they not be targeted on economic development issues? By that, we mean reducing or cutting the business taxes levied in Louisiana but not in competing Southern states, or that otherwise impede business development.
There's a bigger debate to be had here, of course: if economic development is the goal, one can legitimately ask whether tax cuts of any kind are the right way to go at a time when the state has wide-ranging unmet needs. But the Advocate is right to question state lawmakers' reflexive interest in repealing the Stelly tax cuts.

1 comment:

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