Cutting marginal LA income tax rates must top priorities

Were Gov. Kathleen Blanco running for reelection, she might show more enthusiasm for tax cuts with the state sitting on possibly more than $3 billion in surplus. But she’s not, letting her liberal Democrat instincts kick in to have her resist the idea of cutting government in any significant way. Still, she’s now admitting that maybe a few reductions would not cause the end of the world, so how should Louisiana proceed with this lukewarm, watered-down attitude of Blanco’s?

The grand slam of those trying to restrain government and give large portions of the citizenry their money back is reversion to the situation many years ago, where all federal “excess” deductions also could be claimed as such on Louisiana income taxes (none can be now), and lowering income thresholds to bump households into lower tax brackets, without reimposition of state sales taxes on many items. Such a laudable goal probably cannot be attained given Blanco’s and the Legislature’s liberal Democrats. Therefore, some part of this goal should be pursued, but what?

The ability to deduct some items could prove to be salutary across all tax brackets, particularly charitable, health care, and mortgage expenses. Charities do a better job than government of ameliorating the majority of social problems so their funding should be encouraged, while for the unfortunate few families hit with big medical expenses full deductibility of health care costs could help dramatically their situations, and since a home will make up a good chunk of the assets of many households, assistance here also is welcome.

But if only one thing could be attained, it would be best to go for raising the bracket thresholds and/or lowering the marginal tax rate. This is because the tax system in Louisiana is heavily progressive, penalizing the most productive members of society by requiring them to shoulder the majority of the burden. As a comparison, two years before the landmark 2003 tax changes (the “Stelly Plan”) went into effect, the upper 51.9 percent of household incomes paid 96 percent of all personal income taxes (that group paying an average of $1,588 compared to $70.50 for the lower group) while last year the upper 52.4 percent of household incomes paid 94.6 percent of all personal income taxes (that group paying an average of about $2,075 compared to $127 for the lower group).

While it is unfair to have so few carry so many on this revenue source, any reduction across the board would help all productive citizens, especially the most productive. If any single tax reduction can assist the state in getting more investment into the economy, that’s the direction Blanco and legislative leaders should head.