Debate over income tax bracket adjustment continues in stalled session

By Tryfon Boukouvidis and Drew White, LSU Manship School News Service

BATON ROUGE — A proposal supported by the Legislative Black Caucus to adjust individual income tax brackets to raise $443 million in revenue is at the center of the latest dispute that has stalled talks on how to deal with a projected $1 billion budget shortfall.

The proposal, opposed by most Republicans, would increase income tax rates for single filers making more than $12,500 and joint filers earning more than $25,000. It also would slash the level of federal itemized deductions that could be written off on state returns to 50 percent from 100 percent.

Robert Travis Scott, president of the Public Affairs Research Council of Louisiana, said the changes in tax brackets would mean relatively small tax increases, mostly for taxpayers in the middle- and upper-income groups.

But Scott, who was a member of a bipartisan task force that suggested adjusting the tax brackets, also said that making those changes alone does not represent the kind of comprehensive reform that some of the proposal’s supporters claim.

Scott said the task force’s idea was to “not only raise tax revenue, but to offset that with lower rates” to achieve a more stable, predictable and fair tax collection.

“People are trying to argue that we’re a step closer to reform,” he said. But with the proposal as it now stands, he said, “We’re a giant step further away.” He added that legislators “want the money, they don’t want the reform.”  

Louisiana has progressive tax rates, which means that taxes increase as income increases. The proposal would not affect the lowest tax rate, which is 2 percent for single filers with net incomes of up to $12,500 and joint filers earning up to $25,000.

Single filers currently pay four percent on the next $37,500 of net income and 6 percent on income above $50,000. The thresholds for joint filers are twice as high: They begin paying four percent at $50,000 and 6 percent at $100,000.

Under the new proposal, single filers would pay four percent on net income between $12,500 and $25,000 and six percent on all income above that. Joint filers would pay four percent on income between $25,000 and $50,000 and six percent on income above that.

“That’s not something that has ever been on the table with us, and that’s not something as Republicans that we support,” Rep. Stephen Dwight, R-Lake Charles, said in an interview Tuesday.

 “We all assumed it was off the table,” Dwight said. “Maybe it wasn’t off the table between the Governor and the Black Caucus. I don’t know that, that’s between them–but as far as we saw it, it was off the table, so we just moved forward, and I don’t think everyone was on the same page.”

The plan to change the tax brackets was included in a bill filed by Rep. Walt Leger, D-New Orleans. But Gov. John Bel Edwards had indicated that he did not plan to push the proposal in the special legislative session, which ends March 7. And Leger did not include it in a compromise that the House Ways and Means Committee approved Sunday.

That compromise would have extended one quarter of a penny of sales tax for another three years, as many Republicans wanted, and cut back some of the itemized deductions, as Democrats sought.

The sales tax extension would raise $300 million in revenue, while the deductions of home mortgage interest and charitable donations were left untouched in the compromise, lowering the amount that the limit on itemized tax deductions would raise to $79 million from $100 million.

But as the House prepared to take up the compromise on Monday morning, Black Caucus leaders said they thought it was placed too much of the burden on lower-income people through the sales tax extension. They said they wanted to see the changes in the tax brackets to collect more from middle- and upper-income individuals.

Supporters described the proposal as consistent with recommendations made over a year ago by the bipartisan task force commissioned to study possible budget and tax changes. Rep. Patricia Haynes Smith, D-Baton Rouge, said it was “definitely one of the task force recommendations.”

But Scott, the former task force member, said it only partially covers those recommendations, which were meant to be taken as a whole.

Scott suggested that the types of reforms the state needs are “not in the session.”

Scott said that “to reform the individual income tax system, you want to achieve lower rates and a broader tax base.”

One of the ways to do that is to eliminate the federal tax deduction or the excess itemized deduction, a measure that Republicans will not consider.  

Louisiana is currently one of only three states that allow residents to fully deduct their federal income taxes from their state income tax returns. Eliminating the federal tax deduction requires a constitutional amendment, something that cannot happen in this special session. 

“We’re not getting closer to tax reform,” Scott said. “We keep moving further and further away from that ultimate solution by everything we’re doing now.”

Ryan Noonan contributed to this report.