As a consensus builds that the
state must rein in overgenerous tax exceptions, Jindal
offered that the state should cap tax credits that paid out beyond tax
liability incurred at that liability. This week his administration estimated this
amount at around $590
million. Retaining some portion in that neighborhood would go a long way to
closing a budget gap between forecast revenues apportioned to dedicated purposes
plus those going into the general fund and current expenditures plus an inflation
factor that equals $1.6 billion.
But the Jindal Administration also
indicated that some of this “excess” amount would end up off limits to
retention, citing approximately $3 million in the form of the School
Readiness Tax Credits and $21 million in the Earned
Income Tax Credit that would continue to go to eligible recipients beyond
their tax liabilities. The former, actually several related items with the one
in question the only of five payable to families, kicks back money for a child
under the age of six that attends a decently-rated or better child care
facility, which essentially could be 150 percent of its federal version (unreduced
by federal income tax liability, if any) for a family making $25,000 or fewer,
with a $2,100 maximum credit. The latter allows for as much as 3.5 percent of
its federal version, graduated by filing status and number of children; for example,
a married couple with no qualifying children would have to earn less than $20,330
of which less than $3,400 could be investment income, and some of it would have
to be earned through at least part-time work. A family with three or more children
could be credited for $218.
The SRTC presently among the states
is unique to Louisiana, as a form of preschool provision with the rating scale
attempting to reflect in part learning potential of children afforded by the
facility in question (which also draws tax credits). The basic idea is not objectionable
if policy-makers agree this is a cost-effective way to pay for preschool education
(whether that is so is another matter) but the refundable portion subverts it
by permitting capture of dollars above liability; a refusal to parcel that out
would encourage breadwinners to work more by making that extra income tax free.
As such, the rebate should be ended permanently.
About half
the states have an EITC, most being refundable and all higher than
Louisiana’s (which is the only state in the south to have it). While the EITC does
create an incentive to work as opposed to living entirely off of government
programs, that’s more of palliative to a symptom rather than addressing the
disease that assistance programs are too generous and/or do not distinguish
well enough between the deserving poor, who try to the best of their abilities
to earn sufficient income and/or who through bad fortune temporarily or
permanently cannot, and the undeserving poor, who have the capacity to work and
earn a subsistence living but who choose not to and/or make poor lifestyle
choices that hamper that ability. As a result, the EITC (which also has
a substantial fraud problem at the federal level that therefore becomes
replicated at the state level) is a poor
substitute for a negative income tax and the negatives of which, its
discouragement of working more and more productively, outweigh its positives.
And it doesn’t even hit its target of
the deserving poor. For example, a household could be enormously asset-rich,
with these assets appreciating noticeably year after year, but as long as these
don’t pay much investment income (interest, dividends, or capital gains), its
members still qualify for the EITC even if working minimally at their leisure. It’s
just a crude and inefficient tool to fight poverty when better, less costly
means exist. Not only was it a mistake that Louisiana instituted one in the
waning days of all-Democrat control of state government, but it is further entirely
counterproductive that it should rebate any money related to it, whether offset
by tax liability.
Therefore, if policy-makers really
want to cut expenditures via refunds and eliminate an unproductive and
ineffective tax break, not only should the refund portion go, but also as well
the entire credit. But the Jindal Administration has signaled it’s not willing,
mimicking legislators who have proposed a mild
paring of the enormously wasteful and costly Motion Picture Investor Tax Credit
instead of its withering away.
In the case of the legislators,
their watered-down effort may have come from trepidation dealing with a
well-heeled industry unafraid to throw its clout around through legislative elections
coming up this fall and in capitol corridors. In the case of Jindal, it may
stem from an increasing infatuation with running for president for next year
and the belief that proposing the entire abolishment of these credits might
somehow look “uncompassionate,” consistent with his reluctance to have it appear
that taxes could go up on lower-income individuals that made
his attempted reform so complex as to doom it in 2013.
Possibly with the SRTC, but certainly
in the case of the EITC, which costs state taxpayers nearly $50 million
annually, with its net negative policy impact the state can’t afford to let a
bad decision continue. The EITC needs not only permanently to have excised its
refund portion, but also its discontinuation in its entirety as a first step to
curing Louisiana’s inefficient and convoluted fiscal structure that has ushered
in recurring budget-making difficulties.
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