Downs Gives Sneak Preview of Road Funding Needs

Next month we'll be hearing a lot about exactly how big Louisiana's transportation funding shortfall is. But House Transportation Committee Vice-Chairman Hollis Downs (R) gave a sneak preview yesterday.

Louisiana needs $750 million per year in new revenue to address road and bridge needs, the vice-chairman of the House Transportation Committee said Monday.

To put this in context, Louisiana raises a bit less than this annually from its entire gasoline tax right now. So if the money were all coming from own-source gas tax revenues, Louisiana would have to more than double its gas tax to meet its needs.

Of course, the state's transportation funding doesn't really work that way. The feds kick in a fair amount, and state vehicle fees, tolls and general fund revenue fill in the gaps. But the size of the annual gap still should give pause to any Louisiana lawmakers who think they've got a budget surplus.

Is It Possible for Property Taxes to Be Too Low?

In Louisiana, the answer is probably "yes."
An excellent editorial in the Daily Advocate notes that the ten lowest-property-tax counties in America in 2006-2008 (for residential property) were all in Louisiana. The main reason for this is pretty straightforward: every owner-occupied home in Louisiana receives an exemption for the first $75,000 of home value. In practice, this amount covers something close to half of all properties in the state.
The topic is being raised right now because there are active proposals to increase the homestead exemption. As the Advocate editorial correctly notes, the impact of this would be a

shift of tax burdens directly onto owners of business and commercial property. It also would shift more of the property tax burden onto renters, rather than homeowners; renters pay property taxes through their monthly checks to landlords, without benefit of a homestead exemption.

This isn't an argument that Louisiana's homestead exemption actually needs to be reduced. But it certainly makes a good case that further increases ought to be the last thing on state policymakers' minds at this time.

Ashworth in Times-Picayune: More Revenue Needed

On one level, it doesn't take a visionary to see that the Louisiana tax system should be fairer and more sustainable. But it's still swimming against the tide, in the current political climate, to state these views. So, kudos to LANO's Edward Ashworth, who has an excellent column in today's Times-Picayune making the case for progressive revenue-raising reform. An excerpt:

It's a cliche that problems are opportunities, but Louisiana's financial situation presents a historic chance to realign the state's revenue-raising system so everyone -- individuals and corporations alike -- pays their fair share and the state has the money it needs.

Ashworth correctly identifies the state's high reliance on sales taxes, and its low reliance on income taxes, as driving factors in making the state's tax system more unfair than most other states' revenue-raising structures.

As long as you don't read the reader comments, you will leave this op-ed a smarter person than before you read it.

Louisiana's Tax Amnesty: $303M in the bank

The count is in: the recently-ended Louisiana tax amnesty brought in $303 million in revenue for the state.
The lion's share of the money-- $277 million-- was paid by delinquent businesses, with individuals ponying up the remaining $26 million.
This result raises three interesting policy questions.
1) Was the amnesty, taken on its own, a good deal for the state? Amnesties are often driven by the need to get revenue immediately at any cost, and all too often the result is that states agree to give up all penalties and interest if delinquent taxpayers just pay the original balance. The problem with this, of course, is that the delinquent taxpayers are essentially getting an interest-free loan, and the state is not getting what they're legally due. In this particular case, the deal apparently was that if you settled up in full, you got to keep half of the interest that was due. This is less costly than what a lot of states have done. It still does, however, carry a cost to the state. Verdict: Could have been worse.
2) What to do with the money? More than half is going to shore up specific funds: the rainy day fund and a "coastal fund." The rest, more controversially, is going to pay for health care. If this is controversial, it's because it's using what is arguably a one-shot revenue inflow to pay for what is clearly an ongoing expenditure. Put another way, finding a dollar bill under the cushions of your couch can help buy you dinner tonight, but then it won't help you tomorrow night. Gov. Jindal is arguing explicitly that at least some of this revenue should be thought of as ongoing, because they're bringing taxpayers back into the system. But the official verdict will come from the Revenue Estimating Conference. Verdict: thumbs up for shoring up rainy day fund, but don't pat yourself on the back for solving the health care funding problem just yet.
3) What are the implications for successful enforcement of the tax laws? A main argument against amnesties is that if folks know they're coming, they'll be less afraid to avoid taxes in the first place. This will be a problem if Louisiana continues to do amnesties, but is not clearly so yet. The really interesting question is what you can infer from the huge different between the amount raised from businesses ($277M) and the amount paid by individuals ($26M). Does this mean that businesses are cheating more? Alternative plausible explanations: businesses pay proportionally more of Louisiana taxes to begin with than do individuals (although this really can't explain the huge difference), or that the individuals who owe the most aren't taking advantage of the amnesty simply because they can't afford to, even with half the interest given back.

The $303 million yield of this amnesty will certainly help the fiscal situation in the short run. But Louisiana policymakers should take this opportunity to think strategically about what this success means for future amnesties-- and, more importantly, what it tells them about where they need to focus their normal enforcement efforts.

No Income Tax Repeal-- For Now

So this is what passes for sane tax policy among Louisiana lawmakers: elected officials have agreed that before digging a $4 billion hole in the state budget by repealing the state's income tax, they need to think about it a little bit first.

The Shreveport Times' editorial board notes with approval that lawmakers have decided they need to take a longer look before they leap on this one. But that's not because the fine folks at the Times think income tax repeal is a dumb idea per se:

[T]he elimination of the state's income tax, if done quickly, could be a potent tool to reverse population outmigration in a state poised to lose a congressional district after the 2010 census.

No, they're just a bit worried about what income tax repeal might to do other taxes.

The Times' caution on the income-tax-repeal idea is warranted-- but they have the wrong reason for worrying. The real problem lawmakers need to think about is that we just don't know what the economic impact of income tax repeal would be. Taken on its own, repeal would put more money in Louisianans' pockets, which would obviously be good for the economy-- taken on its own. But if income tax repeal turns out to be unaffordable-- say, because the oil-price boom generating Louisiana's current budget surplus turns out not to be sustainable-- then this tax cut will have to be paid for with spending cuts. Whether that's done through reducing employment, abandoning transportation infrastructure upgrades or paring back health care spending, these spending cuts will-- taken on their own-- have exactly the opposite economic impact of the tax cuts. 

Which effect wins out? Does cutting taxes help the economy more than cutting spending hurts it? Hard to say- it depends what sort of spending cuts result. But the point to remember is that the Times doesn't want to recognize that this choice is a two-sided coin. You can't evaluate the impact of tax cuts without at least trying to evaluate the impact of spending cuts.

Landrieu: Extend Targeted Tax Cuts

Even as a brewing scandal unfolds surround the state's tax incentive program for on-location film-making, Louisiana Lieutenant Governor Mitch Landrieu says he wants to extend this approach to economic development into new areas:

Louisiana should take a cue from its successful film tax credit program and
target other areas that could boost the state’s cultural economy, Lt. Gov. Mitch
Landrieu said Monday.
The film tax credit program is an example of “a targeted tax policy” that is working to improve the cultural and economic climate in Louisiana, Landrieu told the Press Club of Baton Rouge. The film industry success is why Landrieu said his agency is pushing tax credits in other areas, such as, for artists, individuals in the food industry and historic preservation.

Targeted tax incentives can go wrong in two important ways. First, when competing jurisdictions start offering the same incentives, your own tax incentives suddenly lose their effectiveness. (And you can make a case that this is exactly what's happened with Louisiana's film incentives.) Second, each tiny little incentive erodes the state's tax base a tiny little bit. The more tax incentives you offer, the more the base erodes. And each bit of base erosion effectively shifts the cost of funding public services onto everyone else-- that is, except for the artists and filmmakers and "individuals in the food industry." In short, tax incentives are a zero-sum game, and the more you work to create winners, the more you are inevitably creating losers.

If Landrieu has his way, and Louisiana's film incentives turn out to be the vanguard of more comprehensive effort to provide tax breaks for everyone with an artistic bone in their bodies, the less-artistic among us will suddenly find that our Louisiana taxes are higher than they used to be-- and they'll have Landrieu's tax incentives to thank.

Times-Picayune: Stop Playing Santa With Local Government Revenue

As Louisiana lawmakers consider a number of different approaches to a temporary "sales tax holiday," the editorial board at the Times-Picayune has some sound advice for legislative tax writers: don't force local governments to foot the bill.

The board notes that the most prominent proposal, authored by Rep. Billy Montgomery, "would waive not only state taxes but also taxes collected by local governments for services ranging from schools to law enforcement." They continue:

Rep. Montgomery's proposal... would take away millions of dollars from municipalities and parishes across the state -- a decision that should be up to the governing bodies of those localities, not to the Legislature.
If this bill becomes law, the state would be dealing a particularly hard blow to local governments recovering from the 2005 hurricanes, which need every bit of revenue to rebuild infrastructure and provide services. This is why the city of New Orleans is opposing Rep. Montgomery's measure.
But even better-off localities would suffer. The Legislature would be taking away local revenues at the same time that proposed pay raises to public employees in Gov. Blanco's budget are poised to increase the operating costs of many local governments.

States enacting sales tax holidays usually don't force locals to follow suit-- and even then, there's virtual unanimity among tax policy analysts that they're bad tax policy, offering lawmakers a weekend's worth of good PR without offering meaningful tax cuts to the fixed-income families who are hit hardest by the sales tax. But Louisiana's "screw the locals" approach adds a whole new dimension to one of the most cynical tax "relief" ploys that has been dreamed up by tax-averse, PR-hungry lawmakers in recent years. Find out more about sales tax holidays in this ITEP policy brief.