Archive for January, 2013

Statement from LDR Executive Counsel Tim Barfield on ITEP study and job creation

BATON ROUGE – It is ironic that ITEP – a liberal special interest group – launched an attack on the same day the Wall Street Journal editorialized in support of our proposal as well as other states who are seeking to eliminate income taxes. 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.

There are progressive measures in the current tax code to help low-income groups, which we will retain in our final proposal. Sales tax exemptions are currently protected by the Louisiana Constitution and will remain so. The basic necessities of life – groceries, prescription medicine, and residential utilities – will remain sales-tax free. The proposal will also include some form of an Earned Income Tax Credit to offset any additional sales tax burden that might impact low-income Louisianans.

ITEP ignores an inconvenient truth: the states without a personal income tax – four of which are named in ITEP’s “Terrible Ten” list – helped create the most jobs in America over the last decade.

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Know the Facts: Personal Income Tax and the Economic Growth of States

Who Grows?

  1. From 2001 to 2011, states without a personal income tax of any kind experienced average annual GSP[1] growth of 4.81%, whereas states with a tax structure similar to that of present-day Louisiana experienced average annual GSP growth of 3.69%.[2]
  2. States without personal income tax grew their economies on average 1.13% more each year than those structured like present-day Louisiana.
  3. Had Louisiana’s economy grown 1.13% more each year between 2001 and 2011, it would have been 6% larger (about $15 billion or more than 100,000 jobs) than its actual size at the end of 2011. [3]
  4. Texas, a state with no personal income tax, grew at an average annual rate of 5.15% between 2001 and 2011.  New York, a state with a relatively high personal income tax, grew at an average annual rate of 3.49%. 
  5. In 2001, Texas’s economy was $42 billion smaller than New York’s economy.  By 2011, Texas’s economy was $151 billion larger than New York’s because of its faster economic growth.
  6. From 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax.[4]

 


[1] GSP, or Gross State Product, is a measure of the economic output of a state.  It is analogous to GDP, or Gross Domestic Product, which is the measure of the economic output of a nation.

[2] 2001-2011 Bureau of Economic Analysis, Public Domain. http://www.bea.gov/

[3] Louisiana Workforce Commission, Civilian Labor Force, December 2012.

[4] The Wall Street Journal, Jan. 30, 2013, on page A12 in some U.S. editions of The Wall Street Journal, with the headline: The State Tax Reformers.

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New Computer System to Prevent Tax Fraud

BATON ROUGE – Recent actions by the US Congress regarding the fiscal cliff legislation, known as the American Taxpayer Relief Act (ATRA), delayed the date when Internal Revenue Service (IRS) tax returns may be filed. Today, January 30, is the first day when federal income returns will be accepted. The Louisiana Department of Revenue (LDR) will also begin to receive income tax returns today.

The majority of IRS tax returns are now filed electronically. In 2012, 80 percent of all federal tax returns were filed electronically, fulfilling a goal Congress set in 1998. Since 2007, the number of Louisiana taxpayers filing their taxes electronically has risen by 58 percent. In 2011, 1.6 million Louisiana taxpayers (82 percent of the total number of Louisiana taxpayers) e-filed filed their state income tax return.

With the increase in electronic filing, tax fraud has skyrocketed. At the federal level, tax fraud remains the third largest theft of federal funds (just behind Medicare/Medicaid and unemployment insurance fraud) and has risen to a record 1.1 million cases in 2011. With the rise in electronic filing of Louisiana state income tax returns, state tax fraud has also increased. Tax fraud cases in Louisiana directly discovered as a result of current theft protection measures have risen to almost 23,000 cases in 2012.

LDR has taken steps to prevent e-filing fraud in coordination with the IRS. When current Executive Counsel, Tim Barfield and Chief of Staff Jarrod Coniglio first arrived at the agency late in 2012, a priority was placed on protecting the public from tax fraud with the installation and integration of new fraud protection software.

“When I first saw the data and the growing possibility for millions of dollars to be stolen from the state of Louisiana, we wanted to put in measures that would immediately maximize LDR’s efficiency to prevent tax fraud,” Barfield said.

LDR worked during December 2012/January 2013 to develop a customized Louisiana-specific fraud protection computer interface. The new system required a significant testing phase to assure accuracy of the system, protect taxpayer identity, and secure all confidential taxpayer information.

All state income tax returns received on or after January 30, 2013, will be subject to identity verification through the new tax protection software. The first taxpayer returns will be processed February 15, 2013. Refunds will begin to be issued on February 26, 2013.

If a return is identified as questionable in the review process, the taxpayer will then be directed to a customized online data test or a telephone survey that will serve as a secure method to verify the identity and final certification of the return.

“We are confident this new system will help protect the public trust against tax fraud,” Barfield stated. “Our goal is to increase the efficiency and effectiveness of this agency as we serve Louisiana taxpayers during the tax season.”

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Penalty Relief for Estimated Tax Due Janary 15, 2013

Due to the delay in releasing tax forms and processing for the 2013 tax filing season, LDR will provide penalty relief to some taxpayers:

  1. Exception to Estimated Payment Declaration Requirement—Revised Statute 47:116(F) allows an exception for taxpayers who are required to pay estimated taxes. Under normal circumstances, if the taxpayer files their income tax return and pays the tax in full on or before January 31st, there is no Underpayment of Estimated Tax (UET) Penalty on the estimated payment due January 15th.  LDR has extended the January 31st deadline for the 2012 tax year to February 15, 2013.
  2. Exception to Estimated Payment Declaration Requirement for farmers and fishermen—Revised Statute 47:116(F) allows an exception for farmers and fishermen required to pay estimated taxes. Under normal circumstances, if the qualifying farmer or fisherman files their income tax return and pays the tax in full on or before March 1st, there is no Underpayment of Estimated Tax (UET) Penalty.  The IRS has already extended this date to April 15,2013 due to the fact that some schedules used by farmers & fishermen will not be ready prior to March 1st.  LDR will follow the IRS lead and extend the March 1st deadline to April 15, 2013.

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Know the Facts: ITEP Sidesteps the Truth

BATON ROUGE – Recent news reports refer to a policy brief from the Institute on Taxation and Economic Policy (ITEP). This study examined various news reports that provided incomplete assumptions about the proposed tax reforms currently under deliberation in Louisiana. The title, “Proposal to Eliminate Income Taxes Amounts to a Tax Increase on the Bottom 80 Percent of Louisianans,” cannot be substantiated because the official plan has not been released.

The Louisiana Department of Revenue (LDR) examined ITEP’s study and found the following to be true:

1.  ITEP’s numbers do not reflect reality. ITEP falsely assumes a “worst case scenario” in which every dollar in state revenue lost from the elimination of the personal income tax (PIT) and the corporate income and franchise taxes (CIFT) is restored solely by increasing the state sales tax rate. Under those conditions, the state sales tax rate would need to be 7.94%[1] to make up the lost revenue. No scenario currently under consideration requires a sales tax rate nearly that high. 

2.  ITEP’s financial assumptions are not accurate. News reports available to ITEP state that other sources of revenue are currently under consideration – the elimination of some sales tax exemptions, the expansion of the sales tax base to include more services, and an increase in the excise tax on cigarettes. ITEP considers none of these revenue sources in their calculations. Though ITEP does not know the details of the package, including some of these revenue sources in their analysis could have given the public a more realistic sense of the tax reform package before it is released. Even including guesses about potential revenue from these sources would have made for a more accurate analysis than what ITEP produced.

3.  ITEP’s financial scope is distorted. ITEP does not factor in an offset (such as an Earned Income Tax Credit [EITC] or some other mechanism). News reports available to ITEP reveal that a variety of offset mechanisms for low-income people are currently being discussed and analyzed.  The state is determined to ensure that the final proposal will make no Louisiana citizen worse off.

4.  ITEP’s financial conclusions are suspect. Though ITEP claims to be using Bureau of Labor Statistics Consumer Expenditure Survey data (a reputable source), the spending habits attributed to low-income people are suspicious. ITEP claims that the average Louisianan with an income of $25,000 will experience a net tax increase of $566. Louisiana tax data indicates that the average taxpayer at this income level pays $363 in income tax. After factoring in the benefit from eliminating the personal income tax, this taxpayer would need to pay $929 more in sales tax than what he/she currently pays.[2]  Assuming that this taxpayer’s expenditures remain constant, he/she would need to have annual sales taxable expenditures of roughly $23,500 to realize that kind of tax increase.[3]

5.  ITEP’s scheme ignores key facts. Food for home consumption, prescription drugs, and residential utilities are exempt from state sales tax. Expenditures such as rent or housing costs, insurance costs, etc. are also not subject to state sales tax. So, in order for ITEP’s study to be remotely accurate, a taxpayer with an income of $25,000 must spend $23,500 per year on things like clothing, restaurants, electronics, home supplies (cleaning supplies, home maintenance supplies, etc.), some forms of entertainment, etc.  It is extremely unlikely that the average person with income at $25,000 exhibits such exorbitant spending habits. 


[1] REC 2012 Collections Data

[2] ($566+$363 = $929)

[3] $23,500 x 4% = $940 sales tax paid (current).  $23,500 x 7.94% = $1865.90 sales tax paid (ITEP rate proposal).  $1865.90 – $940 = $925.90 increased sales tax.

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Know the Facts: Sales Taxes & Income Taxes

BATON ROUGE – With news outlets continuing to report on the Governor’s goal of eliminating personal and corporate income taxes, some comparisons have been made between the sales tax and the income tax, and what it means for individuals and the state. Here are some facts and figures to keep in mind:

1. Sales tax is a MORE STABLE form of revenue compared to the personal income tax. According to the Louisiana Revenue Estimating Conference (REC) and the Louisiana Department of Revenue (LDR), sales tax collections have historically been MORE STABLE than personal income tax collections.  (REC Historical Data; LDR Annual Reports). Additionally, according to R. Alison Felix, who authored “The Growth and Volatility of State Tax Revenue Sources in the Tenth District,” state sales taxes have proven to be a more stable source of revenue for year-to-year budgetary expenditures.”

2. Over a 30-year period, the nonpartisan Tax Foundation used 26 different economic studies to determine sales taxes were MORE BENEFICIAL for economic growth than both personal and corporate income tax. (Tax Foundation Special Report No. 207 December 18, 2012)

3. Eliminating personal income tax will create a business climate that encourages MORE BUSINESS INVESTMENT and MORE JOBS. According to the nonpartisan Tax Policy Center, America’s economy would steadily grow by “0.6 percent larger than otherwise after two years; 1.8 percent larger after ten years; and 3.6 percent larger in the very long run” if the nation switched to a tax system that relied on sales tax, not income tax. (Tax Policy Center) 

4. Sales tax grows with the economy. When compared to other sources of revenue, sales tax is relatively stable during economic downturns resulting in more revenue as the need arises. 

5. Governor Jindal’s proposal will KEEP the Constitutional protections for the exemptions of food for home consumption, prescription medicine, and residential utilities. These exemptions result in the average individual or family with income under $30,000 per year having almost half of their annual purchases exempt from state sales tax. These progressive provisions lessen the impact of the sales tax on lower income individuals and families.

6. In order to offset unfair impacts to low income groups, Governor Jindal’s proposal will set aside funding to operate an Earned Income Tax Credit or a similar mechanism. 

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Louisiana state income tax filing begins January 30, 2013

BATON ROUGE – The Louisiana Department of Revenue (LDR) will begin processing 2012 state individual income tax returns on January 30, 2013.  On that date, 2012 state income tax forms will become available at www.revenue.louisiana.gov/taxforms and at LDR offices and public libraries throughout the state.  Louisiana File Online, the state’s electronic filing application, will begin accepting returns on that date, as well.

The state income tax filing deadline is May 15.

LDR recommends the following steps to ensure the speed and accuracy of tax return and refund processing:

  • File electronically – The average refund processing time for returns filed electronically is ten business days; for returns filed on paper, the delay is 12 to 16 weeks
  • Update your personal information if you have moved or changed your name during the tax year
  • Double-check return information – Ensure that all social security numbers and tax computations are correct; math errors and incorrect tax table information are leading causes of delayed refunds
  • Include all supporting information, such as W-2s; use paperclips, not staples, if filing a paper return
  • Apply for extensions in a timely manner – Extension requests must be filed no later than the May 15 income tax filing deadline
  • If additional tax is due, include the remittance coupon to ensure proper posting
  • Make checks or money orders payable to the Louisiana Department of Revenue; do not send cash
  • If filing on paper, attach the proper label to the mailing envelope

Visit the LDR website for the locations of agency headquarters and field offices.

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Louisiana File Online is the state’s free web portal for individual and business tax filers.  With Louisiana File Online, taxpayers can:

  • File returns and pay taxes electronically
  • Check the status of individual income tax refunds
  • Amend tax returns
  • View business tax information for current and previous years

Louisiana File Online is a public service from the Department of Revenue.  There are no fees associated with its use.  Visit www.revenue.louisiana.gov/fileonline.  

Taxpayers may also use commercial tax preparation software to file their state income taxes.

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