Economists warn tax increase to cut La. revenue

Advocate photo by APRIL BUFFINGTON -- Greg Albrecht, left, chief economist for the Legislative Fiscal Office discusses the state's financial outlook with Jim Richardson, right, an LSU economics professor, during their appearance Monday at the Press Club of Baton Rouge.

The near-inevitable federal tax increase in 2013 will mean less revenue for state services in Louisiana, two state economists said Monday.

“We are going to have another budget issue over collections,” said Jim Richardson, an LSU economics professor. “Our feds will see to that.”

Richardson and Greg Albrecht, chief economist for the Legislative Fiscal Office, spoke to the Press Club of Baton Rouge.

Their comments came on the heels of last week’s announcement that the state is facing its fifth year of midyear budget cuts amid less-than-expected state revenue collections.

On Friday, Jindal administration officials spelled out plans to trim $166 million in the state’s $25 billion operating budget.

Because of the way Louisiana’s tax system is set up, a rise in federal taxes means less revenue for the state and vice versa, Richardson said.

President Barack Obama and congressional leaders are trying to agree on a plan that combines tax increases and spending cuts.

However, many expect tax increases of some kind on single earners who make more than $200,000 per year and joint filers who make more than $250,000.

“And that will come back and affect Louisiana in some way,” Richardson said. “That is what we have to worry about.”

Richardson is a member of the Revenue Estimating Conference, which decides how much state government can spend.

The federal action could trim state revenue collections by $124 million, Albrecht said, and possibly more, and that impact could start being felt in spring 2014.

Budget forecasters have factored in some such decrease in future state revenue tallies to account for the expected increase in federal income taxes, he said.

Aside from the latest midyear reductions, state services face a shortage of about $1 billion for the financial year that begins July 1 to maintain spending at current levels.

Gov. Bobby Jindal has ruled out state tax increases to address the issue.

The 2013 regular legislative session begins April 8.

Richardson cited a chart that shows Louisiana’s state and local tax burden is about $3,000 per person, which is around the middle of the pack among states in the South.

“The tax burden is not the most-pressing issue except in the sense of how people perceive it,” he said.

Richardson said the highest marginal rate for single filers — 6 percent in Louisiana — takes effect with $50,000 of taxable income. He said the top rates kick in at $3,000 of taxable income in Alabama, $7,000 in Georgia and $10,000 in Mississippi.

Albrecht said state revenue grew by about 4.7 percent year between 1990 and 2005, then just over 4 percent until 2010.

Personal income tax collections and sales tax revenue accounts for half of Louisiana’s revenue base.

Before the recent downturn, much of the surge stemmed from a revenue windfall during recovery after Hurricane Katrina struck in 2005.

About $150 billion flowed into the state over four years from the federal government and private insurance firms, Richardson said.

Albrecht said he thinks state revenue will grow by about 3 percent a year for the next several years.

Comments

1) Comment by Warp7 - 18/12/2012

Come on right wingers, who changed the tax structure in Louisiana with out coming up with a plan to generate funds to replace the funds lost due to this change? Jindal that is who. Don't blame the President for Jindal and the Republican Legislature. Also when you look at a state and Gulf rich in Oil and wonder why we have not been fully drilling for over 38 years now, look no further than Exxon an other US based oil companies.

2) Comment by Mygulfbleedsforu - 18/12/2012

Richardson above says, "Our feds will see to that [that we're going to have a budget issue]." CountryAttorney below says, "Now this isn't directly 'Obama's' fault, per se, but he sure isn't trying to help the problem." Do these two believe the feds should not adjust its income taxes because our state decided to structure its taxation on the feds? The Host and others are saying, basically, "Duh! Of course the state will collect less if the feds collect more because we all will have less money to spend." Really? Isn't that true if *anything at all* goes up in price? Even LSU football tickets? Or your car insurance? This blame game is short-sighted silliness in overdirve.

3) Comment by DMJ - 18/12/2012

Mygulf, they could do that...but then they would lose their strawman argument. What's a good conservative to do with no one to blame?

4) Comment by Mygulfbleedsforu - 18/12/2012

It seems the state could pass a revenue-neutral measure that would eliminate the federal income tax deduction but also decrease the rates on the resulting larger taxable income, to come out even, based on the most recently available data. Then future changes in federal tax won't affect Louisiana revenues.

5) Comment by foldgers - 18/12/2012

JR Madden, I am not saying we are an oil state right now, but we could be. We have tons of it below our feet. Many companies have leases on land all over the state, including some land my family owns, so they could ONE day drill there when they so desire. Why not start now? I am just asking as I do not know why we don't do something to get the companies to start drilling instead of waiting.

6) Comment by agagent - 18/12/2012

True higher income taxes will hurt state revenue. The federal government is not addressing the national debt, as well as increasing the burden on states. Federal Medicaid reimbursement rates decreased and states picked up the bill for billions of dollars in Medicaid spending. When Obamacare asks states to operate exchanges the states pay the costs. The federal government says Louisiana is richer so the state pays a larger share of Medicaid costs. The stimulus mandated “continuing efforts” for higher expenditures in welfare and Medicaid. When Obmamcare adds millions to Medicaid the cost will eventually be turned over to the states.

7) Comment by J.R.Madden - 18/12/2012

Using data from the Louisiana Dept of Natural Resources, our On Land Oil Production was 145M barrels in 1946. It rose rapidly to rates about 401-406M barrels in 1967-1971. Since then it has tapered off to an estimated 46M barrels for 2012. The Louisiana Offshore Oil reached its peak of 65M barrels 1970 and has constantly dropped to 2012's estimated 5MB. That does not support a long-term concept of us being a "oil state" onshore or offshore.

8) Comment by zealer99 - 18/12/2012

How about a walk on the moderate side. Reduce the amount of Federal Income Tax that can be deducted from Louisiana Income Tax to 75 Percent of the current reduction, or about what it would take to eliminate this hit. State Taxes would not be increased but Federal action would not injure the State.

9) Comment by The_Host - 18/12/2012

If you can not see plain as day why this will leave the State with less money you truly are one clueless individual when it comes to economics and taxation. In your world how many times can you spend the same dollar? How many dollars can you spend this year when you have less than you did the year before? We are talking the simplest of math and economics here folks. Many of you are showing your ignorance of reality. It is almost comical that anyone would even need to be explained why this would affect us at the state level. But these are the same people that think everything flows from government so I guess it's really not that suprising that the clueless are well, clueless.

10) Comment by foldgers - 18/12/2012

We have a bunch of oil here, drill drill drill! We can become an oil state as well, instead of just "living off of" the royalties from the drills in the gulf.

11) Comment by Lannonmac - 18/12/2012

CountryAttorney needs to re-read my post, nowhere did I suggest eliminating the Louisiana federal income tax deduction. What I said is that we need make some rational tax policy decisions in this state or we will continue to have a yearly deficit problems. It is OBVIOUS that the tax policies now in place are not working, therefore a rational person would seek to remedy the problem. I also said that because there will be drastic federal spending cuts caused by the fiscal cliff, Louisiana’s (huge) share of federal spending will dry up, making things worse. Not very difficult to understand.

12) Comment by DMJ - 18/12/2012

Rodeo Clown and folgers, thanks. They should have been as clear in the article. In light of what you guys said...doesn't this seem like a silly (bad) way to figure state income taxes? I mean.... the feds try to balance the budget and it results in budget holes for the states? Not a sound formula, in my opinion.

13) Comment by bourbon-soda - 18/12/2012

1) Anyone who thinks roads, medical care, and public schools in Louisiana were not about the same as they are now compared to other states during the time when Louisiana government was infested with Democrats, either wasn't here or needs to be evaluated for dementia. 2) It is laughable that economists have to explain the free lunch theory to members of the Press Club.

14) Comment by twinkie1cat - 18/12/2012

Louisiana conservatives are so backward and racist they would blame Obama for the Mayan calendar. The problem is Bobby Jindal and his Jindalclone assistants and cowardly legislators who are so busy being "pro-life" that they refuse to serve their constituents. It is time they got together, rubbed shoulders with the black folks in the legislature and the moderates and took Jindal's power. Start with BESE and then his right to make appointments without legislative approval.

15) Comment by CountryAttorney - 18/12/2012

So, Lannonmac, are you saying that because the federal income tax will increase, Louisiana will receive less revenue, and the only way to remedy that is to raise state income taxes by eliminating the federal tax deduction? So because of some action of the federal government, Louisiana will suffer unless it follows suit by raising taxes...do you see a cause and effect??? It's called LOGIC, people! Now this isn't directly "Obama's" fault, per se, but he sure isn't trying to help the problem.

16) Comment by twinkie1cat - 18/12/2012

So the article thinks we are going to go off the fiscal cliff. Well do and the Republicans will get the well deserved blame and, Hallelujah! go the way of the Whigs and Tories.

17) Comment by twinkie1cat - 18/12/2012

I did not mind paying taxes in Georgia because I could see where my money went---decent schools with quality buildings, excellent highway system even in rural areas, good medical care, even for the poor (although you did have to wait). At least it was that way before the state government got so infested with Republicans. But what do we get here for our taxes---a absentee governor traveling on our dime, holes in the roads, everything contracted, unemployed state workers, overpaid assistants to our overpaid governor, and a state schoo superintendent who is not a teacher, underpaid teachers and schools being paid to teach religion. Every penny of any more cuts needs to come directly from Jindal's executive branch budget. Every penny until he is squeezed so hard that all his toothpaste comes out of the tube and he resigns. Do your job, legislature! You can be Louisiana's hope or its downfall.

18) Comment by RODEO CLOWN - 18/12/2012

DMJ: "And that will come back and affect Louisiana in some way.” In what way? Anyone else still unclear about WHY a rise in federal income taxes for the wealthy would affect Louisiana specifically?" DMJ, the response to your question is quiet simple. Louisiana's income tax collections are effected by the amount of federal taxes one pays. Louisiana's tax code permits a taxpayer to REDUCE reportable/taxable income to the state by an amount equal to the taxpayers federal income tax liability. This results in a dollar for dollar reduction in the amount of taxable income reported on one's state tax return. As a result, the amount of income tax one pays to the state is a function of one's federal tax liability. The less a taxpayer pays in federal income tax, the more one(typically) pays in state income taxes. The opposite is also be true, i.e, the more a taxpayer pays in federal taxes the less the taxpayer would be liable/responsible for in state income taxes. The proposed increase in federal income taxes would result in larger deductions/lower reported income on the state return/and therefore, lower income tax collections for the state.

19) Comment by Lannonmac - 18/12/2012

DMJ, though the article never says it, I think the reason Louisiana’s revenue generated from state income tax will drop because Louisiana gives a 100% deduction for federal income tax paid, so if the federal income tax goes up, the amount of the deduction goes up and state revenues goes down. Your right, Obama will get all the blame here in Louisiana. I predict bleak times for this state for the foreseeable future, stumbling from one fiscal disaster to the next.

20) Comment by DMJ - 18/12/2012

Lannonmac, you're right....unfortunately, "Gov. Bobby Jindal has ruled out state tax increases to address the issue." Ugh. You know what's crazy? Most people will blame Obama (not Jindal) for this. I see from the comments that some already are.

21) Comment by Lannonmac - 18/12/2012

The annual State deficits are purely self-inflicted, caused by the repeal of the Stelly Plan and the implementation of Gov. Jindal’s tax policies by the State Legislature. When compared with the other 50 states, Louisiana has the 5th lowest per capita overall tax burden, and our roads, schools, crime rate, infrastructure and lack of state services shows it. But never fear, things can (and probably will) become worse, because Louisiana receives $1.72 in federal money for every $1 Louisiana citizens pay in federal income tax, therefore, when the spending cuts forced by the “fiscal cliff” go into effect much of Louisiana’s money received from the Federal government will dry up. So if you think things are bad now, just wait until 2013! Unless Louisiana makes some rational tax policy changes in the near future, Mississippi and Arkansas will look like the Promised Land when compared to Louisiana.

22) Comment by foldgers - 18/12/2012

DMJ: One way it could hurt, I think, is that what I pay in federal taxes I can use as a deduction for my state taxes. So, if my federal taxes go from $2000 to $3000, for example only, then when I file my state taxes, I can deduct $1000 more. Therefore, pay less in state taxes. That is I think one way it could hurt state revenue. A possible other way, the wealthy that will be taxed more federally in this state will probably spend a little less money as a result and that means less sales taxes. Just thoughts here, as I am not a pro at this.

23) Comment by DMJ - 18/12/2012

“And that will come back and affect Louisiana in some way.” In what way? Anyone else still unclear about WHY a rise in federal income taxes for the wealthy would affect Louisiana specifically?

24) Comment by agagent - 18/12/2012

Obama said taxing the rich was about “fairness” and some parrots agree. Taxing the rich does not solve the deficit and debt problem, but it will hurt Louisiana’s revenue. At best it will give the federal government money to run the federal government a week or two . . . until it hinders job creation and hurts the economy. More will become dependent on government. Because of Obama’s debt the federal government will waste hundreds of billions of dollars on servicing the national debt instead of paying for government services. Obama wants to spend more on another stimulus (translation - reward his supporters for their votes), and he wants unlimited power to raise the debt ceiling. His policies have lowered the average household income and increased dependence on government, instead of helping the middle class.

25) Comment by Terd Handler - 18/12/2012

The irony here is that while Obama is working to make the rich psy their fair share, Jindal is trying to shift the tax burden to the middle class in order to protect his rich friends.

26) Comment by The_Host - 18/12/2012

In a word, DUH! The pile of money is only so big and if uncle sugar takes an even bigger skim off the top guess what that leaves everyone else. LESS MONEY to spend and less taxes locally collected. Brilliant!