Report: Louisiana's poor pay higher tax rate than the rich ... - The Lens

Jindal

The poor in Louisiana pay twice as much of their income in state and local taxes as do the rich, a new study shows.

The report, released Wednesday by the Institute on Taxation and Economic Policy, a liberal, Washington, D.C.-based group, will likely raise more questions about Gov. Bobby Jindal?s plan to eliminate income and corporate taxes and replace them with additional sales taxes. That plan is already facing criticism that it would hit the poor hardest.

Though virtually all states tax the poor at higher rates than the wealthy, the disparity in Louisiana makes for one of the most regressive tax systems in the country, the report found. A regressive tax structure results in the poor paying a higher percentage of their income than do middle-class residents and the rich. The Jindal plan seems likely to make Louisiana even more regressive because of its mounting reliance on sales taxes, an impost that falls most heavily on the poor.

?It is a standard finding in the public finance literature that the sales tax is the most regressive, the income tax the most progressive and the property tax falls in between,? said Steven Sheffrin, a Tulane economics professor who is director of the university?s Murphy Institute.

The 20 percent poorest of non-elderly families in Louisiana paid 10.6 percent of their family?s income in state and local taxes while the richest 1 percent paid 4.6 percent, the ITEP study found.

?The study says we already have a regressive system in Louisiana,? said Jan Moller, director of the Louisiana Budget Project, a liberal Baton Rouge-based research and advocacy group. Under the Jindal plan, ?it would get worse. The only question is how much worse. You can make a bad plan somewhat better, but that doesn?t solve the problem.?

Tim Barfield, executive counsel to Jindal?s Revenue Department, has said the governor plans to expand the Earned Income Tax Credit for the poor to offset the higher sales taxes. The credit amounts to a negative tax rate for low-income residents.

About 70 days before the Legislature convenes on April 8, Jindal, ?has yet to reveal details of his plan to Louisiana taxpayers. He has been busy speaking to Republican groups around the country.

Eliminating income and corporate taxes would cost the state about $3 billion a year, state figures show. To offset the lost revenue?which Jindal says he intends to do?he is expected to favor raising ?the state sales tax and imposing taxes on some activities and purchases that are currently exempt. His aides have said, however, that Jindal won?t touch the exemptions on groceries, prescription drugs and home utility bills.

Jindal and Barfield have indicated that they want to focus not on whose taxes will be lowered or raised but on how the plan will spur investment and job creation in Louisiana.

Greg Albrecht, the chief economist for the non-partisan Legislative Fiscal Office, published a commentary Wednesday that questions how much extra tax revenue the Jindal plan might produce.

The ?macroeconomic effects of such a tax swap are likely to be small, if they exist at all,? Albrecht wrote. ?States in general do not really have macroeconomic policy?capability. States cannot manipulate the money supply or interests rates, and have to balance their budgets annually. Elimination of income taxes will increase disposable income, but the spending of total disposable income will be subject to higher taxation.?

The Jindal administration responded to the report Wednesday evening with a written statement:

We have a fundamental philosophical disagreement with ITEP about how to help the poor and improve job opportunities for all Louisianans. Contrary to ITEP?s definition of fairness, we believe that the less money the government takes from people?s incomes, the better.

The best way to alleviate poverty is to create jobs, and the way to create jobs is by structuring a tax code that is fairer and simpler so that Louisiana can continue to foster an environment where businesses want to invest and create job opportunities for all of Louisiana?s citizens. Study after study has shown that companies move to places where taxes are lower, and job creation is the only sustainable way to combat systemic poverty.

The ITEP study overall found that virtually every state taxes the poor at higher rates than the wealthy. The states with the 10 most regressive tax systems include Texas and Florida, which don?t have income taxes and rely on sales taxes for their revenue. Jindal has said he wants to model Louisiana?s tax system on those two states.

Source: http://thelensnola.org/2013/01/30/report-louisianas-poor-pay-higher-tax-rate-than-the-rich/

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