Written by Mike Hasten
BATON ROUGE — Louisiana’s current tax structure is unfair to low- and middle-income families, a study examining tax structures says, and the tax revision plan pushed by Gov. Bobby Jindal would make it worse.
Matthew Gardner, head of the Institute on Taxation and Economic Policy and lead investigator on the report “Who Pays?” said dropping income taxes in exchange for higher sales taxes, as planned by Jindal, would aggravate the situation and broaden the gap between the two segments.
“It’s crystal clear that to shift away from income taxes to sales taxes would make an already unfair tax system even more unfair,” Gardner said. “From the respect of tax fairness, it’s absolutely wrong.”
Referring to data showing that higher income residents have a lighter tax burden, he said, “It’s hard for anyone to say with a straight face that the highest income taxpayers are paying their fair share.”
But shifting the tax structure to equalize the burden “is a really hard thing to do.”
Tim Barfield, executive counsel for the state Department of Revenue and point man for the Jindal tax swap, said he and ITEP have a “basic philosophical difference” in how they look at improving the tax structure.
“ITEP is more about wealth transfer to improve the plight of poor people,” Barfield said. “We’re not about wealth transfer. The best way to help the plight of poor people is to grow economically and create job opportunities so they can be employed.”
The ITEP study shows that when state and local taxes are combined, the financial impact on about 60 percent of state’s taxpayers’ available income is double what it is on the wealthiest residents.
And when just sales and excise tax is included, the impact on low-income families is seven times what it is on the wealthiest families.
“Louisiana’s tax system absolutely is not fair and it’s not flat,” Gardner said, referring to Jindal’s statement that he wants a tax system that is “fairer and flatter.”
“The single best way to do that is to reduce the role sales tax plays and to increase the role that income tax plays” in providing state revenues, he said. “Gov. Jindal wants to do the opposite.”
“Cutting the income tax and relying on sales taxes to make up the lost revenues is the surest way to make an already upside down tax system even more so,” Gardner said.
If that’s the path the governor wants to take, he should strip all exemptions on sales tax and make it apply to all goods and services, Gardner said. But that would be politically difficult because “every exemption has a constituency.”
Barfield said the plan is to keep exemptions on “necessities” — food for home consumption, residential utilities and prescription drugs — but lift some others. That set of exemptions “already gives significant benefit to the low and middle class.”
Taxes would be assessed on services that currently aren’t taxed and on Internet sales.
Sales taxes, with a built-in protection for the lower income residents, would be better because “tax at the point of consumption simplifies the process,” he said. The administration is working on some way to have “little or no impact on the poor, compared to what we have now.”
But the final product to be presented to legislators is not finished. The administration is still working on how to offset the impact of the tax swap on the poor and lower middle class and is researching what taxes would be effective in overcoming the $2 billion drop in state revenue by eliminating personal and corporate income taxes..
Louisiana Budget Project Director Jan Moller said legislators should keep the ITEP report in mind as they consider legislation that could make Louisiana’s tax structure “even more tilted against the poor.
“Policymakers should be looking for ways to make Louisiana’s tax structure more fair, instead of raising taxes on the middle class to finance tax cuts for the wealthy,” Moller said.
The administration says its goal is to grow the private economy, not the government economy, and that eliminating personal and business income taxes would “put more money into people’s pockets.”
The Tax Foundation, a conservative group favored by business, supports Jindal’s move to eliminate income taxes and shift to sales taxes as the primary source of state revenue.
ITEP says the 10 states with the highest taxes on the poor are Arizona, Arkansas, Florida, Hawaii, Illinois, Indiana, Pennsylvania, Rhode Island, Texas and Washington.
Several of those states are included in the Tax Foundation’s assessments of the lowest tax burden states in the country.