LA people taxed too much, not relatively little

All aboard the tax hike train, at least one media outlet in Louisiana appears to encourage to the detriment of the state.

It’s no secret that Democrat Gov. John Bel Edwards has longed since his first day in office for tax increases, and disproportionately on its most productive entities, rather than reduce the size of Louisiana state government. He did manage to get a temporary sales tax increase through the Legislature, but it was his last, least preferred option.

Now Edwards has more impetus to seek tax increases. The descent of the Wuhan coronavirus pandemic has triggered overall revenue reductions and higher expenditures in some areas, particularly concerning the burgeoning imbalance of unemployment insurance payments going out compared to taxes coming in. Instead of pulling back on government spending for this fiscal year, Edwards successfully implored the Legislature to spend federal government largesse without cuts, making for an expensive ticking time bomb for taxpayers.

But other than letting the temporary sales tax through (and in a manner lower than Edwards preferred upon renewal in 2018), the Legislature has resisted raising rates paid by individuals, with many of its Republican majority arguing Louisianans paid enough, if not too much, in taxes. If that sentiment wins the day, absent any bailout from the federal government on which Edwards has pinned his hopes, he’ll have left only the option he desperately resists, trimming government.

However, the Baton Rouge Advocate recently threw a lifeline to his way of thinking. Last month, an individually unattributed opinion piece (but probably the work of its Capitol New Bureau chief Mark Ballard) advanced the argument that Louisiana citizens didn’t suffer from over-taxation. Drawing upon data from BestPlaces.net, a firm that collects information for personal living and business site locations, Louisiana ranked for individuals eighth most tax-friendly to invoke a headline declaring, “Louisiana tax load isn’t so bad.”

Yet this stands in direct contradiction with a piece from financial website WalletHub.com that ran a month earlier. The site produces a dizzying array of state comparisons, on which Louisiana usually doesn’t fare well. Nor did it for this one, which calculated individual tax burden for each state using Tax Policy Center data and placed Louisiana 14^th worst.

Which analysis would serve better as a policy-making tool in this debate? For BestPlaces’ ranking, it took income, sales, real estate, and vehicle taxes, computed these, and then figured an effective rate (taxes paid proportional to amount paid upon) on the basis of three assumptions: that the individual made $60,000 annually, that he owned a house at the median state value, and that he owned a vehicle worth $25,000.

In 2018, median household income was over $63,000 for the U.S., but in Louisiana it was just under $50,000. Further, not everybody owns a vehicle (or house, for that matter, but presumably real estate taxes get factored into rents). So, the BestPlaces estimate already isn’t a great fit for Louisianans in general; it really is more specific to upper-middle class folks, especially in Louisiana.

By contrast, the WalletHub measure simply takes the proportion of total personal income that residents pay toward state and local taxes in those three categories. Their sales tax category also included excise taxes.

This method provides a more valid assessment of tax burden, because it takes the aggregate of personal income and aggregate of all taxes collected. It isn’t precise, because some taxes paid will come from nonresidents, but Louisiana residents will pay some taxes not captured by the state to others so it’s a decent approximation. Unlike BestPaces, it doesn’t take a hypothetical and somewhat atypical household; it scales its results to the population’s parameters.

While Louisiana ranks well on income and property taxes, sales and excise taxes really sink the state, with the fourth-highest proportion paid. That makes sense, with one of the highest combined rates among the states for sales and with a lower income level than most, these kinds of taxes impact disproportionately the lower income goes.

And it shows how out-of-step Louisiana is with its peers. Every state whose residents pay a higher proportional burden has a much higher median household income, and several in the latter category rank much lower on the former (such as Texas, Utah, and Colorado, which not coincidentally are fast-growing in population and economically).

Ultimately, you can’t make the argument that Louisiana relatively is undertaxed. Indeed, that would further tighten the lid on raising incomes by taking still more out of the private economy. This information calls for right-sizing government downwards if revenues decrease, not raising taxes on an already overburdened Louisiana taxpayer.