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From Governing’s
In exchange for the $240 million revenue loss, personal income tax brackets were restructured to move more taxpayers into the top bracket and to disallow some existing deductions. The shift is close to revenue-neutral; forecasters predict a net cost of $9 million in the current year and a net gain of $50 million annually by 2007.
Economists may argue about the benefits of taxing food and utilities, but in Louisiana’s case, the original decision to tax them was not based on economic or social policy considerations. It was simply the most expedient way to close a budget hole back in 1986. That year, the legislature decided it would get rid of these exemptions temporarily to smooth out a $400 million shortfall. But, like many temporary fiscal expedients, this one didn’t disappear when revenues picked up. In fact, every two years starting in 1986, legislators renewed the taxes in a routine that current Governor Mike Foster calls the “dance of death.” Approval took a two-thirds majority vote in both houses. Legislative leaders, anxious to keep hundreds of millions of dollars in their budgetary pockets, traded off parcels of pork to their members every other year to secure the necessary votes. Meanwhile, state agencies couldn’t be sure the taxes would be passed when writing the budget, so managers lacked the ability to plan effectively. Former Representative Vic Stelly, who sponsored last year’s ballot-box measure, is one of the leaders of a growing group both in and out of state government pushing for comprehensive tax reform. “By itself, this plan is not going to take care of all the future needs, but it’s a first step,” he says. In FY2003, Louisiana faced a budget hole of $160 million, which it resolved with $75 million in budget cuts and by dipping into its rainy day fund. Its tax system relies in large part on an eroding sales tax base and volatile oil and gas prices. A commission, comprised mostly of private-sector economists, lawyers and accountants, studied the state’s tax structure in 2001. Its six recommendations — none of which has been approved by the legislature — included a controversial call to scale back the exemption from property taxes for the first $75,000 of value of every home in the state. This is the most generous such break in the country and a huge expense. “That’s the ultimate of the sacred cows,” says Jim Brandt, president of the Louisiana Public Affairs Research Council. The exemption protects poor homeowners, but it also protects rich ones. As a result, business owners and renters pay a disproportionate share of property taxes — the break doesn’t cover rental property — and localities don’t have enough money for adequate funding of schools. There are also some large business taxes that may call for remediation. Unlike other Southern states, Louisiana continues to tax manufacturing machinery and equipment, and is one of only two states in the country (along with Oklahoma) to include debt in the calculation of franchise tax liability often taken out to start or expand a company. “They’re major disadvantages to economic growth,” Brandt says. “They make it extremely difficult for business attraction and growth from within.” But if these levies were eliminated, it isn’t clear how the state would make up the loss in dollars — or even how big the loss would be. The Revenue Department, meanwhile, is taking some much-needed steps to improve its performance. It has streamlined its operations by organizing employees according to the type of work they do, rather than the type of tax they collect. Equally important, the department has implemented a computer package that stores training modules and reference materials, so employees can access this information from their desktops. This is of critical importance since as much as 20 percent of the department’s workforce is expected to retire in the next three to five years. Other areas are ripe for improvement, including the technology used to support tax administration and customer service. The first pieces of an integrated tax information system went online in January, beginning the process of replacing a decades-old mainframe system that lacks significant analytic capability. The department estimates it will take about three years to fully implement the new system. An earlier effort to create an integrated tax system with a data warehouse was cancelled in 2001 after four years of work and $14 million spent. Online applications have proven more successful. Internet income tax filing has been an unqualified success in the state, and taxpayers can subscribe to receive electronic notices of tax law changes. Names of tax scofflaws — and their overdue liabilities — have been posted on the Web, generating about $3 million in the past two years. Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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he direct involvement of citizens in tax policy, through the mechanism of the ballot-box referendum, has led to unpleasant fiscal consequences in most of the states where it has been tried. California’s Proposition 13 is only one example of its unintended consequences. But sometimes the voters do make sensible decisions: Those in Louisiana made one just a couple of months ago. They approved a constitutional amendment reinstating the sales tax exemption on food and residential utilities, thus providing some badly needed help to low-income citizens who spend a disproportionate share of their income on groceries and fuel.