Economy

Louisiana Will Tax Its Poor To Fill Budget Hole Caused By Tax Cuts For The Rich

CREDIT: Patrick Dennis Baton Rouge Advocate via AP, Pool

Former Louisiana Gov. Bobby Jindal (R) waves goodbye at the inauguration of Gov. John Bel Edwards (D) in January.

Louisianans will pay more and get back less under a compromise struck Wednesday over the state’s enormous budget gap.

The deal raises sales taxes by 25 percent — from four cents on the dollar to five — and applies the higher rate to a number of transactions that had previously been exempt from sales taxes.

It also falls $830 million short of fixing the state’s problems, making further cuts likely to services that have already been gutted.

Because the sales tax applies to consumption rather than income, the hike Louisiana lawmakers agreed to will be regressive: While people in the top 20 percent of the income distribution will pay 41 percent of the total cost of the tax hike according to the Louisiana Budget Project, the sales tax mechanism takes a bigger bite out of a poor family’s income than a rich one’s. Politicians are making poor people shoulder a load caused primarily by ex-Gov. Bobby Jindal’s (R) tax breaks for the rich.

The broad sales tax hike will raise $1.1 billion against the nearly $3 billion shortfall over the next 16 months. Lawmakers scrounged another $81 million from alcohol and cigarette tax hikes. These, too, are disproportionately targeted to low-income consumers who are more likely to smoke than wealthier people.

That’s not to say the deal was a complete rout for the underclass. Businesses lost some sales tax exemptions, and Democrats thwarted a campaign to raise the sales tax rate by twice as much.

The sales tax bump is temporary, scheduled to revert at the end of fiscal year 2018 according to the language of the bill. But with more red ink still on Louisiana’s horizon, lawmakers may be tempted to prolong the pain for shoppers in their state.

A slate of smaller business and sales tax tweaks will raise another $35 million or so. Much of the revenue raised by the combination of bills is listed as “uncertain” according to Associated Press. But state leaders expect these yet-unwritten tax provisions, including a sales tax for online purchases, to raise hundreds of millions more dollars.

The package still falls $30 million short of what Louisiana needs to fund all state services from now until the end of June, and $800 million shy of what’s needed for fiscal year 2017. Lawmakers faced a combined $3 billion gap over those two periods when Gov. John Bel Edwards (D) called them into the special session that closed about three quarters of the total hole.

Key state services are going to disappear into that remaining quarter of the budget hole. The $30 million shortfall this year will force cuts to agencies like the Department of Chilldren and Family Services, which was already at about half strength after massive cuts late in Jindal’s term.

Uncertainty looms for the coming fiscal year, too, which is particularly damaging to the state’s higher education system. Schools can’t make confident salary decisions without knowing how next year’s budgets will look. Students who plan to enroll may not be able to if lawmakers don’t shore up funding for a key state scholarship program.

And the legislature won’t meet to resolve those sorts of questions in time for administrators to make decisions that reflect the lawmakers’ plans, meaning layoffs, classroom cutbacks, and disenrollments are likely. “It’s a bad timeline. That’s a terrible timeline for us,” Louisiana State University president King Alexander told the New Orleans Times-Picayune Wednesday. Other, less well-heeled schools in the state are in far more dire straits, as the Washington Post has detailed.

The questions that remain after Wednesday’s deal have a simple answer: Restore income tax rates to the levels Louisiana used prior to Jindal’s reign.

The extreme gap Bel Edwards inherited has a variety of causes, including the collapse in oil prices that’s pushed Louisiana into recession. But the chief driver of the state’s deficits is Jindal’s decision to repeal a voter-approved income tax hike on wealthier residents and businesses. He was adamant on that policy choice, electing to sell off state property and scramble for patchwork accounting maneuvers in the closing years of his term rather than reckoning head-on with the trouble the supply-side tax cuts had caused.

This article has been updated to reflect the fact that low-income people smoke more tobacco than the rich, but do not drink more alcohol.