One sure way to get spirited feedback from talk show hosts and conservative Internet bloggers in Louisiana is to talk about the Stelly income tax plan. Just the mention of the plan that in 2002 eliminated state sales taxes on food and utilities in exchange for higher state income taxes stirs their emotions to fever pitch.
The Stelly plan made the news again last week after Tax Foundation of Washington, D.C., reported that Louisiana has the third-highest combined state and local sales tax rates in the country. Melissa Flournoy told The Times-Picayune of New Orleans that features of the Stelly plan, which sought to balance lower sales tax rates with higher income taxes, should be explored.
“With the rollback of the Stelly Plan a couple of years ago, I think that’s one of the causes of the budget deficit we’re facing now in Louisiana,” Flournoy said.
Unfortunately, Flournoy is director of Louisiana Progress, a liberal advocacy group, and probably has zero credibility with conservatives. Nevertheless, she makes a good point. Something has to be done about the tax system in this state that is weighted heavily against those who are the least able to afford high sales taxes.
I supported the Stelly plan and still consider it one of the most progressive tax reforms ever enacted. However, the higher income tax rates were eliminated by the Legislature in 2007 and 2008. An extremely vocal upper middle class that could afford the higher rates managed to whip up fierce opposition to the plan.
Gov. Bobby Jindal wasn’t keen on eliminating the Stelly income tax increases, but public opinion put him on the side of the plan’s critics, and he caved in when repeal surfaced.
Former state Rep. Vic Stelly, a one-time Republican and current independent who lives in Moss Bluff, sponsored the tax reform plan. And despite continuing criticism of his reform effort, he continues to defend the tax swap.
“Would I change anything? I wouldn’t change a period or a comma,” he told The Associated Press last November.
Those who oppose the plan and legislators who voted to repeal the income tax portion need to come up with an alternative. Louisiana has to do something about its tax structure that is unbalanced, unfair and outdated.
Businesses and industries looking to locate in a state always take a close look at the tax system, and Louisiana goes from one extreme to another. It ranks fourth in the business tax climate index among the 50 states because of its low unemployment insurance tax rate. However, it ranks 49th in combined state and local sales tax rates. The state ranks 24th in individual income tax rates, 23rd in property taxes, 17th in corporate taxes and 32nd overall where the business tax climate is concerned.
The top 10 states where the business tax climate is best are, from first to 10th, Wyoming, South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah. Five of those have no individual state income tax, two have no sales taxes, and Alaska has no statewide sales tax.
The Tax Foundation reports Louisiana’s average combined state and local sales tax rate is 8.85 percent, exceeded only by Tennessee (9.45 percent) and Arizona (9.12 percent).
In fiscal 2011, state sales taxes produced $2.7 billion in revenues. The state income tax was second at $2.4 billion. The severance tax and taxes on petroleum products brought in another $1.4 billion. Other funds come from corporate income, tobacco, corporate franchise and liquor and alcohol taxes.
Local sales taxes are the reason Louisiana’s rate is so high. It’s a different story where state sales taxes are concerned. Colorado has the lowest statewide sales tax at 2.9 percent. Next in line are the 4 percent state sales tax rates in Louisiana, Alabama, Georgia, Hawaii, New York, South Dakota and Wyoming.
We can’t blame local governments for their high sales taxes. They are hamstrung by the state’s homestead exemption that excludes many homes from property taxes. Other tax breaks and exemptions also reduce their revenue sources.
The median property taxes paid on homes in Louisiana is $243. That is 0.18 percent of the median home value in the state and 0.45 percent of the median income. Louisiana ranks 50th in all three categories. New Jersey is No. 1 in all three. The median property taxes there are $6,579.
State Treasurer John Kennedy said Louisiana’s tax system needs a broader base and lower rates that encourage economic development. He suggested the elimination of unnecessary corporate and personal income tax exemptions.
The sales tax situation would be worse if the Stelly plan hadn’t eliminated sales taxes on food and utilities. However, that fact often gets lost in the furor over higher income taxes.
“I’ve heard time and time again, it’s the biggest income tax in history,” Stelly said of his plan. “But never once have I ever heard it’s the biggest sales tax decrease in history.”
Eliminating personal state income taxes is certainly a worthwhile goal, but the state needs to focus first on how to help local governments lower those high local sales taxes. They hinder economic development and hit the poorer among us the hardest.
Jim Beam, the retired editor of the Lake Charles American Press, has covered people and politics for more than ÿve decades. Contact him at 494-4025 or [email protected].