State Sen. Nick Gautreaux’s bills, SB 6 that would eliminate the state income tax on individuals, estates, and trusts over 10 years starting next year, and SB 8 that would allow nonrecurring state surpluses to be given out in tax rebates, both have some good essentials but as is won’t achieve optimal economic development.
A cut in income taxes always is welcome but the question presently is whether legislators would be willing to risk this when the budget already seems seriously out of balance to the estimated tune of $1.75 billion (we’ll know more tomorrow when the official budget is released). No fiscal note on this request yet has been compiled, but the December Revenue Estimating Conference forecast predicts that individual income taxes will be over $2.8 billion in collection for next fiscal year – over a third of general fund revenues meaning the 10 percent reduction that would start halfway through the budget cycle would clip over $140 million from this pending budget, then $280 million or more each year in addition to the previous amount from there on out.
The forecast thinks state revenues will begin to pick up again in a couple of years, so as not to create budgetary chaos, a better plan might be first to drop rates sequentuially, then tackle the elimination of them. While it’s hard to tell exactly given the way the data are reported, the present two percent tax bracket appeared to bring in $111 million for fiscal year 2007-07, the four percent bracket $355 million, and the six percent bracket $2.179 billion. What could be done would be for the first three years starting next year would be slashing a percent off the lowest, then middle, then highest, or reducing (by tax year) state coffers by about $56 million, then $89 million more, and then finally $363 million. This would fit in with revenue projections with the most realistic withdrawal and opportunities to cut spending.
After those three years, then the cut by a tenth every year until elimination could happen. By then, the economic growth triggered by the first three years of reductions (starting with the lowest earners as the economy improves) will cushion the removal of the annual 10 percent. This may take three years longer but smoothes the process somewhat.
His amendment to allow usage of nonrecurring surpluses in rebates is an unobjectionable idea. But passage of this should not serve as a means to deflect attention from enduring tax cuts. Economists note that one-time rebates are far less effective in stimulating economic growth, simply because taxpayers know it is not recurring and they are reluctant to invest money of that nature.
Tinkering with SB 6 is a good start, and SB 8 won’t do any harm unless it is seen as the only cure necessary for a stagnant economic development climate.
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