Lawmakers in Baton Rouge continue to debate solutions to the so-called “Fiscal Cliff.” The Governor and his allies have called for new taxes to close the gap between proposed spending and projected revenue, while others have suggested prioritizing spending and right-sizing government would be a better pathway to the Constitutionally-mandated balanced budget.
As the state continues to shed jobs and population to neighboring states whose economies are growing, it’s important to take a deep look at the projected impact of new taxes. Today, the Pelican Institute, in partnership with the Buckeye Institute’s Economic Research Center, releases the results of a study projecting the economic impact of four different revenue-raising proposals that have been discussed recently: increasing the state sales tax by a quarter-penny, increasing the state sales tax by a half-penny, compressing personal income tax brackets, and reducing individual income tax deductions.
All four scenarios would result in job loss and a decline in the state’s gross domestic product (GDP), key measures of economic health. According to the study:
- Raising the state sales tax by 0.25% would, within a year, lead to the net loss of 1,400 jobs and decrease the state’s GDP by $86 million, while raising $164 million in new tax revenue.
- Increasing the state sales tax by 0.5% would, within a year, lead to the net loss of 2,800 jobs and decrease the state’s GDP by $173 million, while raising $329 million in new tax revenue.
- Adjusting individual income tax brackets (reducing the top of the 4% tax bracket to $25,000) would, within a year, lead to the net loss of 2,600 jobs and decrease the state’s GDP by $191 million, while raising $190 million in new tax revenue.
- Reducing the amount allowable for individual income tax deductions due to excess federal itemized deductions would, within a year, lead to the net loss of 700 jobs and reduce the state’s GDP by $56 million, while raising $56 million in new tax revenue.
Unlike the official projections by the state of Louisiana, the Pelican Institute’s study uses a “dynamic scoring” model, which better reflects the ways in which people and businesses react to government policies. This model presents a more meaningful estimate of how government tax, spending, and regulatory policies affect real-life decisions made by Louisianans every day, and how those decisions bleed through to the larger economy.READ THE STUDY Methodology Explanation