December 22, 2009

Can Louisiana Double Its Gas Tax?

In January, Louisiana lawmakers will be hearing a lot about exactly how big that state's transportation funding shortfall is, as a committee releases the findings of a long-term study of this problem. But House Transportation Committee Vice-Chairman Hollis Downs (R) gave a sneak preview yesterday.
Louisiana needs $750 million per year in new revenue to address road and bridge needs, the vice-chairman of the House Transportation Committee said Monday.
To put this in context, Louisiana raises a bit less than this annually from its entire gasoline tax right now. So if the money were all coming from own-source gas tax revenues, Louisiana would have to more than double its gas tax to meet its needs.

Of course, the state's transportation funding doesn't really work that way. The feds kick in a fair amount, and state vehicle fees, tolls and general fund revenue fill in the gaps. But the size of the annual gap still should give pause to any Louisiana lawmakers who think they've got a budget surplus.

Hawaii: A Budgetary Shell Game, or Just Train Robbery?

This week Hawaii Governor Linda Lingle released the outline of her budget proposal for next year. It's not a pretty picture: the two most prominent tax policy changes in the Lingle plan are a money grab from county governments and a money grab from... the future.

It's true: following up on a similar threat last year, the state would simply stop allocating revenue from the "Transient Accomodations Tax," as the Hawaii hotel tax is known, to counties. The law says that just under half of all TAT revenues should be allocated to the counties. Under the Lingle plan, the state would simply not do that next year, and would instead keep the money to help balance the state budget. Of course, this would leave counties with a budgetary hole of their own, which they'd have to patch by either hiking property taxes or cutting spending. A great deal for the state, and it's only a bad deal for those Hawaii residents who live within a county. Which is to say, all of them.

House Ways and Means Chairwoman Donna Mercado Kim thinks this is actually a pretty good policy. How, you ask? Here's the money quote:
It's a re-occurring pot of money, which is good.
That's right. Once you've taken the counties' lunch money in one year, you can go right back and do it again as long as you want! This isn't really what advocates of sustainable taxation have in mind when they urge states to find recurring (as opposed to one-time) revenue sources...

The second half of the Lingle budget's tax plan amounts to sending an IOU to next year's budget. Under Lingle's proposal, any income tax refunds due as a result of April filings wouldn't be paid until after the next fiscal year begins on July 1. That way, these refunds don't count towards this year's budget. Who are the losers under this plan? Well, anyone who's owed a refund when they file their 2009 taxes, since these guys will basically be asked to give an interest-free loan to the state until July 1. And more fundamentally, whichever legislators are around to deal with the mess during the next fiscal year, since really all this move does is to put part of this year's budget deficit in a box and mail it to next year.

Not the most inspirational stuff.

December 09, 2009

Study in House "Extenders" Bill Would Provide Valuable Info on Many Tax Breaks

Earlier today, the House of Representatives passed its most recent version of the "Tax Extenders" package (H.R. 4213). The "tax extenders" consist of about 50 temporary tax provisions that, as their name suggests, need to be extended every 1-2 years to prevent their expiration. While multiple theories exist as to why these provisions aren't simply made permanent, it is clear that relatively little thought has been given to their effectiveness in promoting the multitude of goals for which they've been supposedly been enacted. The House bill seeks to remedy this problem by requiring that the Joint Committee on Taxation (JCT) conduct studies of each of these provisions using 10 different criteria explained in the bill's language. Addressing each of these 10 criteria would provide valuable insights into these provisions' worth. The full list is quoted below, though items #3, 4, 7, and 10 are of particular note:

(1) An explanation of the tax expenditure and any relevant economic, social, or other context under which it was first enacted.

(2) A description of the intended purpose of the tax expenditure.

(3) An analysis of the overall success of the tax expenditure in achieving such purpose, and evidence supporting such analysis.

(4) An analysis of the extent to which further extending the tax expenditure, or making it permanent, would contribute to achieving such purpose.

(5) A description of the direct and indirect beneficiaries of the tax expenditure, including identifying any unintended beneficiaries.

(6) An analysis of whether the tax expenditure is the most cost-effective method for achieving the purpose for which it was intended, and a description of any more cost-effective methods through which such purpose could be accomplished.

(7) A description of any unintended effects of the tax expenditure that are useful in understanding the tax expenditure’s overall value.

(8) An analysis of how the tax expenditure could be modified to better achieve its original purpose.

(9) A brief description of any interactions (actual or potential) with other tax expenditures or direct spending programs in the same or related budget function worthy of further study.

(10) A description of any unavailable information the staff of the Joint Committee on Taxation may need to complete a more thorough examination and analysis of the tax expenditure, and what must be done to make such information available.

The importance of Criteria #3, 4, and 7 should be obvious -- they attempt to directly address the core issue of these provision's value. But criteria #10 is also of great importance. If the JCT is unable to conduct a thorough study because of a lack of available data, how could lawmakers be expected to meaningfully evaluate these provisions' worth? If the mandate for this study is included in the final "Extenders" bill, any recommendations provided under criteria #10 should be taken very seriously.

Ultimately, the inclusion of this study in the final "Tax Extenders" package would help to pave the way for eliminating any "extenders" that are failing to live up to their original billing. This result should be especially welcome in 2010, when Congress is expected to consider tax reform more broadly in the context of the expiration of the Bush Tax Cuts. For this reason, the Senate should be sure to include this study in their version of the Extenders bill as well.

Finally, as somewhat of an aside, the criteria laid out in this proposed study may also be of use in contemplating a more fundamental overhaul of our government's "performance evaluation" infrastructure, as was proposed in a CTJ report just a few weeks ago.

For more on the Tax Extenders package in general, check out this coverage in CTJ's Tax Justice Digest.

Louisiana: Can Property Tax be Too Low?

In Louisiana, the answer is probably "yes, they could."
An excellent editorial in the Daily Advocate notes that the ten lowest-property-tax counties in America in 2006-2008 (for residential property) were all in Louisiana. The main reason for this is pretty straightforward: every owner-occupied home in Louisiana receives an exemption for the first $75,000 of home value. In practice, this amount covers something close to half of all properties in the state.
The topic is being raised right now because there are active proposals to increase the homestead exemption. As the Advocate editorial correctly notes, the impact of this would be a
shift of tax burdens directly onto owners of business and commercial property. It also would shift more of the property tax burden onto renters, rather than homeowners; renters pay property taxes through their monthly checks to landlords, without benefit of a homestead exemption.
This isn't an argument that Louisiana's homestead exemption actually needs to be reduced. But it certainly makes a good case that further increases ought to be the last thing on state policymakers' minds at this time.