May 25, 2007

Louisiana's "Middle Class" Tax Cut?

The Louisiana Senate has approved a bill that would undo part of the "Stelly" income tax reforms of 2002. The bill would gradually re-introduce a provision allowing Louisianans who itemize their federal income taxes to claim some itemized deductions on their state tax forms.

Marsha Shuler covers the story in today's Advocate. Regarding the question of how many Louisianans would benefit from this tax change, she makes the point a bit subtly:
SB66 would phase in itemized personal deductions at 57.5 percent beginning this year — at a $157 million state cost — and it would reach 100 percent in 2009-2010. About one-fourth of Louisiana’s income tax filers itemize.
The omitted point-- that 75% of Louisianans would get nothing at all from this plan--may be obvious to some, but not to many.

And the omission becomes more glaring later on in the story, when Senator James Cain makes a very different assertion about who would benefit from this plan:
Cain noted that a group of teachers were in the Senate chamber opposing the move. “That’s what hurts me the most,” Cain said. He said many in their number are being hurt by the Stelly income tax. “It hurts the middle class,” he said.
The disjunction between what Cain says and what the data tell us is there if you want to look for it, but it would have been nice to see Shuler connect the dots a bit more.

An equally interesting argument from Cain is that Louisiana should re-introduce itemized deductions simply because most other states allow them.
“Only seven states in America do what we do. We are the only state in the South doing it,” Cain said.
The fact of the matter is that plenty of tax policy types think federal itemized deductions (at least some of them) are just bad tax policy, providing expensive and poorly targeted subsidies for homeownership, charitable giving and other "good" behaviors. The President's tax reform commission (remember them) recommended modifying or repealing most of them a while back. And you can make a pretty good case that the states that have gotten rid of these deductions (like Louisiana) or that never had them (like, say, Illinois) are the ones that have the right idea.

No one like to stick out, and one hears this argument being used to sway state lawmakers all the time. But being different doesn't always have to be bad.

For more on Louisiana's developing tax debate, check out the Louisiana Tax Blog.


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