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LA, its people better off from impending tax reform

It’s official: wide-ranging federal income tax cuts begin in 2018 that promise to boost economic growth and let most people keep more of what they earn. And while tax reform always produces winners and losers, in general Louisiana and Louisianans come out winners.

As previously noted, the state benefits from changes in rules about deductions. The typical taxpayer will see a cut in his federal tax bill, but will take a portion of that to pay a higher Louisiana tax assessment (as the federal rate at all levels exceeds the state rate).

Additionally, while some economists take a less optimistic view of long-term growth as a result of the changes than do others, all agree in the short run a noticeable pickup in economic activity, which will increase organically Louisiana’s tax base. As a result, the Revenue Estimating Conference at its next meeting in the first quarter of 2018 must factor in both sources of revenue boosting, which will reduce any projected deficit and thereby any need to increase taxes after temporary ones roll off at the end of the second quarter.

Also, the state and some of its residents will find the retention of one tax break and addition of another to their advantage. The historic redevelopment credit remains, which helps bringing older structures back into use; Louisiana tends to have these in greater numbers than elsewhere. And it becomes easier for natural disaster victims to write off losses. Plus, as a bonus, the bill could increase the amount of money coming to the state for coastal restoration, depending upon the price of oil.

The legislation now headed for Pres. Donald Trump’s signature contains a provision much discussed, raising unwarranted alarm among some in the state’s higher education community. That disallows the practice of deducting extra payments for a seat to college athletic events.

While some made over-the-top forecasts of plunging donations to university sports programs, where some of this money could get passed on to the academic side, in reality this kind of giving is inelastic. Few will stop paying for event attendance because of their wealth and/or fervor for athletics. Further, the deductibility would have been less attractive anyway because of the hike in the standard deduction. Plus, many already write this off as a business expense. Despite the hyperventilating of some, donations will decline negligibly as a result.

Holders of giant-sized mortgages, filers who took large and varied deductions, and those with extremely large state tax bills might find higher overall tax due. But, outside of the wealthy, almost no Louisianan will pay more, and all should benefit from the greater economic activity that produces higher wages and more jobs.

Thanks for this Christmas present goes to all members of the state’s congressional delegation – except for the Grinch Democrat Rep. Cedric Richmond, who voted against it. Enjoy.

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