Search This Blog


Tax increase small part of cliff solution, if needed

So, the Louisiana Legislature is out of session – any kind – and thus it cannot threaten to take more of what we earn. That won’t last.

With a modicum of tax increases – and also factoring in a second straight year of paying June Medicaid bills in July, hence pushing these into the next fiscal year not covered in the budget about to launch – that means from current spending levels the state faces a deficit of around $1.2 billion for fiscal year 2019, as a number of temporary taxes roll off after June, 2018. Use of tax increases to deal with this would require a special session as regular sessions in even-numbered years can’t process tax increases.

That makes such an extra session inevitable, for Democrats from Gov. John Bel Edwards all the way down to the party’s legislators stubbornly refuse to consider tax reform, that might alleviate the mismatch of money to priorities that makes fewer funds available than could be for genuine needs, as something independent from tax increases. Further, concerning the increased taxation they doggedly insist the citizenry must suffer, they dictate this must come on income and progressively.

In any event, reforms designed to stimulate economic growth take years to reap additional tax dollars collected, so these would provide little short-term boost to impact the deficit. Thus, given these attitudes, reverting entirely back to previously sales tax levels – sales taxation constitutes pretty much all of the temporary taxes to expire – seems unlikely given the size of the cliff. But that doesn’t mean substantial savings don’t exist which could eat significantly into the shortfall.

Statutory changes, and in many cases merely administrative actions, could reap a tremendous annual windfall, such as:

  • Converting long-term care for people with disabilities into a managed care model that would emphasize home- and community-based solutions. Savings: $130 million at first, then $200 million yearly.

  • Asking Medicaid recipients to pay federally-allowed service co-payments. Savings: $91 million.

  • Providing free medical care in public-private partner hospitals to people at the 138 percent or below federal poverty limit level, instead of at 200 percent as currently those in between qualify for subsidies that pay for practically all their premiums. Savings: $65 million.

  • Eliminating the Earned Income Tax Credit, which only a minority of and no other Southern states have that has a net impact of reducing work effort compared to other approaches. Savings: $47 million.

  • Reducing the very inefficient Motion Picture Investor Tax Credit to a $30 million cap, making it still one of the highest among the states in yearly payout. Savings: $150 million.

  • Increasing four-year university undergraduate tuition to the national mean, or about $31.25 per credit hour, thereby releasing a like amount of taxpayer dollars for use elsewhere. Savings: $16.2 million.

  • Raising Taylor Opportunity Program for Scholars qualifying standard to 28 on the American College Test (just a point above the typical score needed just to gain admittance to Texas A&M University besides the state’s affirmative-action-like admittance to the top 10 percent of graduates at their high schools), making it a true merit-based program that would qualify only a quarter of recipients compared to the current standard of 20 (just below the national average). Savings: $233.3 million.

    Altogether, these would reduce the projected deficit by $732.5 million (and over $800 million a year thereafter), and Republicans should support these. As for the remainder, Republicans can offer reinstitution of part of the temporary one cent sales tax for another transitory period to buy more time for fiscal reform. If Democrats, who have enough numbers to block tax increases, refuse, then Republicans can vote through a budget that leaves hundreds of millions of dollars in spending cuts to Edwards.

    It might be unrealistic to expect curing the shortfall entirely through these commonsensical savings tactics and other reductions. But it is unnecessary to cram down the throats of the people another $1.2 billion in tax hikes after they have endured twice that amount in increases already over the past two years, nor in the more economically destructive form on income rather than on sales. Any suggestion otherwise simply isn’t worthy of serious discussion in the special session to come.
  • No comments: