SADOW: The Left Inadvertently Endorses A Flat Tax In Louisiana

Even in manure you sometimes can find a gem here and there. That describes the latest advocacy attempt by the left-wing Louisiana Budget Project, with the very policy problems it identifies amenable to solving by legislation before the Legislature that the group would reject.

Last week, this group that champions redistribution of wealth took advantage of woke trendiness in issuing a report about state tax policy. It rehashed the oft-made observation that the lower income a household, the greater proportion of its cash income goes to pay taxes. This it attributes to state tax policy that charges too high of a sales tax and insufficiently redistributes wealth, but adds a new wrinkle to this critique: that this policy causes “racial injustice in Louisiana’s tax system.”

The report blithely assumes, consistent with the attempted redefinition ongoing by leftist elites of what constitutes confirmatory evidence of racially prejudiced policy, that outcomes define this and thus differences in outcomes by race have no other explanation than prejudicial policy – despite the large amount of evidence that invalidates this notion in a vast number of policy areas. Not only is that a bad assumption, but also the data the report presents also contradicts it.

“Racial injustice” occurs when a racial majority uses its dominance to create policy that discriminates illegitimately against those people not part of it. That, according to the report, in Louisiana a large household income difference exists – black household income is just over half of that for whites, while Hispanic and American Indian households come in at about two-thirds as much – using woke ideology supports the proposition that this “injustice” occurs.

Except … Asian households come in above that of whites. That contradicts the necessary assumption that determines the presence of “racial injustice,” and trashes the entire argument of the report.

Additionally, the report fails to take into account that the lower income households disproportionately take advantage of the wealth redistribution aspect of the system through reception of government benefits, so in a sense since a greater portion of their household incomes come through gifts from the state, it makes sense that the greater portion of income goes to fund that.

Not that higher income households don’t disproportionately foot the bill for those benefits and state spending in general. Using income taxation as an example, of the total $3.5 billion paid for fiscal year 2019, filers with incomes of $25,000 and under – about 40 percent of the total – paid just 3.4 percent of that total. By contrast, the almost equal number of filers above $50,000 paid a whopping 86.4 percent.

That imbalance tends to discourage economic growth and thus revenue production for government, but is tolerated out of a conception of “equity” that Louisiana historically has overcompensated for. Fortunately, a number of bills prefiled for the 2021 regular session of the Legislature aim to fix this.

And, ironically, these bills collectively would follow some recommendations forwarded by the LBP report, such as increasing the child tax credit and eliminating deductions for federal income taxes and for excess federal income tax deductions. One bill, HB 233 by Republican state Rep. Mark Wright (which depends on others to amend the Constitution) includes all of this and even the group’s recommendation – counterproductive at best because of overhyped and deleterious effects – of raising the earned income tax.

However, these bills make up for this net tax increase by instituting a near- to entirely-flat individual income tax. Wright’s version would create a flat three percent rate, and because it also increases personal exemptions only some of the lowest earners would see negligible increases and some of the highest earners would see larger ones. The vast majority of filers would enjoy reductions.

This is exactly the kind of reform Louisiana needs – and exactly the type LBP would reject, because this dilutes the redistributionist credo behind the current system of progressive taxation that it favors. So, while its report fails both conceptually and empirically, some of its recommendations paired with sounder tax policy actually make sense, and hopefully the Legislature will pursue that agenda.

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