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Ask right tax questions to find useful policy

My Advocate colleague Tyler Bridges wrote something last week that, while informative, entirely missed the point of the tax-raising animal spirits currently on display at the Louisiana Legislature’s lingering special session

Running some numbers from various sources, he argued that all the conflict over whether to increase taxes, how, and by how much actually didn’t amount to a whole lot for the typical households. Best he figured, whether on income or sales, it amounted to one percent of an individual’s income.

That implies that all of the conflict renting the session overdramatizes the situation. If just this amount, the tone of the article asks, why can’t some agreement to hike taxes be reached?

If interpreted this way, that relies upon some very questionable assumptions, beginning with the one percent characterization as something essentially trivial. That baldly misses the point that, for some households, one percent might serve as a tipping point between affording necessities or funding activities, such as furthering education, that might provide a substantial boost to the family’s fortunes. More alarmingly, it completely ignores the normative argument involved: is it right that government takes more of what people earn, regardless of the size?

Answering that query shunted aside depends upon whether the state already spends its existing revenues in an efficient manner and whether everything on which it spends truly deserves backing by taxpayer dollars. The evidence suggests neither is the case.

For example, why must the state spend $200 million needlessly on caring for people with disabilities by placing them in nursing homes rather than in the community? And, should the state really spend $150-$180 million a year to make movies when all studies show these expenditures have such a high negative return?

You cannot remove these questions from consideration of how much and who pays, if anybody, with a round of tax increases. It also moots another talking point favored by money-grabbers that has proven the most divisive issue of the session: the demand that increases come from income rather than consumption taxes.

That rests upon the notion of regressivity, or that as incomes go lower a higher proportion of that income gets taken by a tax. Consumption taxes like sales taxes feature regressivity, while an income tax, if marginal rates increase as do incomes, can be shaped as the opposite, progressive in nature.

While regressivity prompts leftists to whine about how systems more reliant on sales taxes are “unfair,” the data show the opposite. If there’s anything “unfair” about the present Louisiana taxation regime, it comes from the fact that (in fiscal year 2016) income tax filers of $100,000 and greater (adjusted gross) income, who comprise about one-eighth of all filers, pay over three-fifths of all income taxes. Meanwhile, those who made $30,000 or fewer, just over half of all filers, paid a whopping six percent of total income taxes. Obviously, the remaining filers, 36 percent of the total, paid the other third.

So, in this debate, Bridges brings up the wrong question. Asking why can’t parties come to an agreement to lift from people’s wallets apparently only a pittance acts as if the larger, more fundamental questions don’t exist of whether Louisianans face enough taxation and how wisely their state spends what it already takes.

Failure to do so puts the cart before the horse. So, while the piece presents an interesting bit of trivia, it adds nothing useful to discussions about Louisiana’s tax policy.

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