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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‘Bill would halt state income taxes’

The Advocate reports that house and senate committees in the Louisiana legislature advanced bills that would repeal the state’s corporate and individual income taxes:

Three bills advanced:

n House Bill 633 by state Rep. Hunter Greene to repeal the state corporate income tax beginning Jan. 1. The bill would reduce state revenue by $81 million the first year.

n House Bill 634, also by Greene, to repeal the state personal income tax beginning Jan. 1. The bill would reduce state revenue by $3 billion the first year of the repeal.

n Senate Bill 259 by state Sen. Rob Marionneaux to phase out the state personal and corporate income taxes by Jan. 1, 2015.

Greg Albrecht, chief economist for the Legislative Fiscal Office, said HB633 and HB634 would eliminate half of the state general fund.

Health care and higher education rely heavily on the state general fund. “It would be quite a challenge,” Albrecht said.

Other states have an increased reliance on property and sales taxes rather than being dependent on income taxes, Albrecht said.

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Louisiana File Online – Fast! Easy! Absolutely Free!

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Report: ‘Tax revenue drop causes $197M La. budget deficit’

Louisiana’s Revenue Estimating Conference forecast a sharp reduction in state revenues for the rest of this fiscal year and into the next.

From the Associated Press:

Louisiana’s revenue forecast dropped $197 million Thursday, driven by plummeting state sales taxes as shoppers shut their wallets and businesses shrink spending in the tight economy.

The state income projecting panel, the Revenue Estimating Conference, revised tax collection estimates sharply downward for the current fiscal year that ends June 30, continuing a recent trend of forecast revisions to reflect drops in tax collections.

Thursday’s changes create a deficit in the $29 billion budget that must be closed in the coming weeks.

Economist Greg Albrecht said sales tax revenue has slumped, and the uptick in severance and royalty money from oil prices isn’t enough to combat it. Albrecht, the chief economist for the Legislative Fiscal Office, said he projects a more than 14 percent decrease in sales tax collections compared to last year — and he said that could get worse.

“There’s just a massive retrenchment of spending for households and businesses,” said Albrecht, whose revenue projections were selected by the conference as the official forecast. “People just aren’t spending.”

Estimates of business tax collections also were cut, along with revenue from gambling taxes.

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