Task Force on Budget and Tax Policy Restructuring

Commissioned to address the fiscal challenges in Louisiana, the Task Force on Structural Changes in Budget and Tax Policy focuses on revenue generation, spending decisions, and tax system improvements to ensure sustainability and efficiency in public service financing.

• Task Force
• Budget
• Tax Policy
• Louisiana
• Fiscal Challenges

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1. TASK FORCE ON STRUCTURAL CHANGES IN BUDGET AND TAX POLICY Choices and Decisions Individual Income Tax

2. 2 Role of The Task Force as created by HCR 11 In 2010 The Commission on Streamlining Government, created during the 2009 regular session of the Louisiana Legislature, issued a report with 238 recommendations to be considered, debated, and then accepted, modified, or rejected regarding the elimination, streamlining, consolidation, privatization, or outsourcing of state services with the focus on reducing the size of state government. The need for such action was summarized as follows: The state of Louisiana faces a severe decline in revenues through fiscal year 2012 which, if no corrective action is taken, will leave a significant funding gap in state government expenditures and will create serious sustainability issues in financing of state obligations. In 2016 the state of Louisiana is facing the very same fiscal gap in upcoming fiscal years between the dollars generated by its revenue structure and the dollars needed to pay for the services the state s leaders believe are in the best interest of the state s citizens. HCR 11 asked this Task Force to examine both spending by the state and how the state pays for these public services. The members of the Task Force submits its recommendations to the members of the State Legislature and the Governor of the State of Louisiana with our greatest admiration and respect for their efforts on behalf of the citizens of Louisiana. 2/28/2025

3. 3 Establishing Budgetary Framework Fundamental Purpose of Tax System: Provide sufficient revenues to fund public services First Step: Decide how much state wants to spend on public services Second Step: Decide how to pay for these public services with the tax structure having these qualities: Short and long-term stability Fairness across and among various income groups Economic competitiveness ideally, a competitive tax environment will mean that special programs to attract business to the state can be minimized Simplicity reducing exemptions, deductions, and credits that expand the length and number of the tax forms, that add to taxpayer compliance burdens, and that create distortions in taxpayer behaviors Stability, fairness, competitiveness, and simplicity are achieved with a broad tax base and the lowest rates possible. 2/28/2025

4. 4 Projected Budget Outlook Based on Current Expenditures and Tax Structure $14.00 $13.50 $13.00 $12.50 Billions of Dollars Approaching $2 billion shortfall in 2021 $12.00 $11.50 Must Make Fundamental Decisions about Spending And/or taxes in 2017 so changes, either spending or tax changes, can be implemented by Fiscal 2018. $11.00 $10.50 $10.00 2017 $12.03 $12.032 2018 $12.32 $12.39 2019 $11.21 $12.76 2020 $11.40 $13.15 2021 $11.68 $13.54 Projected Revenues Projected Expenditures 2/28/2025

5. 5 Tax Choices and Recommendations 2/28/2025

6. Tough Choices Tax Sales Individual Income CIFT Severance/Minerals Gasoline and Special Fuels Tobacco, Beer, Liquor Gaming Excise License Others % of Revenues, 2017 35.7% 25.7% 4.2% 3.9% 5.2% Focus of Reform Must Be Focus Possible exemptions Significant Focus for Infrastructure Task Force No Further Increases No Suggested Changes Independent Study No Suggested Changes 3.1% 7.5% 7.1% 7.5%

7. Suggestions for Exemptions and Credits o Eliminate Federal Tax Liability in exchange for lower rates Alternatively, allow federal tax deduction up to $5,000 for single filers and $10,000 for joint filers Excess Itemized Deductions: Allow up to $7,500 per tax return Average retirement for Persons in Teachers and State Workers is around $25,000. Allow retirement exemptions to be limited to first $30,000 of a person s retirement. This will also be somewhat comparable to how the Federal government handles Social Security Make following suggestions for other credits Eliminate education credits Allow historic tax credit to be reviewed in 2021 film credit for existing credits to be redeemed over time; eliminate motion picture credit as of July 2017; review changes as suggested by LED Keep earned income tax credit and child care credits and, if add food, etc. to sales tax base, increase from 3.5% to 10% Establish inventory tax credit and natural gas tax credit at 50% of inventory ad valorem liability and gradually eliminate over a 5 year period

8. Exemptions, Deductions, and Credits Exemption or Deduction Keep or Not Keep Modification Revenue Involved Task Force Recommendation Standard Deduction/Personal Exemption Keep $253.9 million Dependents Keep $31.8 million Federal Tax Liability Do Not Keep Up to $5,000/$10,000 $877.8 million Excess Itemized Deductions Do Not Keep Up to $7,500 $349.0 million $6,000 Exclusion Do Not Keep $24.4 million LSERS/TRSL/ Others Up to $60,000 Complication is DROP Accounts $93.6 million Federal Up to $60,000 $32.0 million SS Benefits $102.0 million Military Pay/Disability Keep $6.0/$5.2 million

9. Exemptions, Deductions, and Credits Exemption or Deduction Keep or Not Keep Modification Revenue Involved Task Force Recommendation Net Capital Gains Do Not Keep $53.9 million; unsure of fiscal impact Changes made in 2016 sessions could provide sunset School Tuition Fees, Quality Public Education START Deduction Do Not Keep Do Not Keep $22.6 million $3.0 million Do Not Keep $2.3 million Recreation Volunteer Volunteer Firefighter Do Not Keep $0.02 million Do Not Keep $0.06 million I.R.C. Section 280C Expense Home Schooling Do Not Keep $0.52 million Do Not Keep $0.24 million

10. Exemptions, Deductions, and Credits Tax Credit Keep or Not Keep Modification Revenue Involved Task Force Recommendation Net Income Taxes Paid to other States Keep $60.3 million Child Care-based on federal credit Keep $18.3 million EITC Keep $48.9 million Education ($25) Do Not Keep $10.5 million School Readiness Do Not Keep $14.6 million Motion Picture Eliminate, but pay for outstanding credits Historic Tax Credit Maintain as is $37.2 million Inventory/NG Reduce to 50% of value Vessel/Telephone Keep Citizens Property Do Not Keep $29.4 million, but already reduced Solar Maintain current law

11. Federal Tax Deduction

12. Individual Income Tax Increase Relative to Average Federal Adjusted Gross Income Due to Eliminating Federal Tax Liability 2.50% Raises $748.6 million based on 2014 Tax Returns 2.00% 1.50% 1.00% 0.50% 0.00%

13. Eliminating FID; collecting about $750 million in additional tax revenues Same rate structure: 2%/4%/6% <$25,000 >$25,000, BUT <$50,000 >$50,000, BUT <$100,000 >$100,000, BUT <$200,000 >$200,000 % Taxpayers %AGI %Current Tax %Proposed Tax

14. Eliminating FITD and Comparing Current Rates (2/4/6) to Rates (1/3/5) 2.50% 2.00% 1.50% +$750 million 1.00% +$210 million 0.50% 0.00% -0.50% % Change in Income Tax Payments at 1/3/5 % Change in Income Tax Payments at 2/4/6

15. Tax Comparisons Current: $2.7 billion NO FITD, 2/4/6: $3.5 billion NO FITD, 1/3/5: $2.9 billion 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% <$25,000 >$25,000, but <$50,000 >$50,000, but <$100,000 >$100,000, but <$200,000 >$200,000 %Current Tax %Proposed Tax, NO FITD and 2/4/6 % Proposed Tax, NO FITD and 1/3/5

16. 16 Cap FITD AT $10,000 2.00% 1.80% +$462.9 million 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2/28/2025

17. Excess Itemized Deductions

18. Number of Taxpayers Who File Schedule A on Federal Tax Returns (420,252 in total or about 25%) Income Range # of Taxpayers Itemizing Income Range # of Taxpayers Itemizing Income Range # of Taxpayers Itemizing $0 to $5000 1,882 $70000 to $80000 27,020 $300000 to $350000 6,087 $5000 to $10000 3,223 $80000 to $90000 24,485 $350000 to $400000 3,999 $10000 to $15000 5,863 $90000 to $100000 22,773 $400000 to $450000 2,830 $15000 to $20000 8,322 $100000 to $120000 40,003 $450000 to $500000 2,115 $20000 to $25000 10,418 $120000 to $140000 30,951 $500000 to $600000 2,725 $25000 to $30000 12,747 $140000 to $160000 23,090 $600000 to $700000 1,644 $30000 to $40000 30,732 $160000 to $180000 16,906 $700000 to $800000 1,144 $40000 to $50000 34,246 $180000 to $200000 12,012 $800000 to $900000 785 $900000 to $1000000 $50000 to $60000 32,922 $200000 to $250000 18,092 555 $60000 to $70000 29,773 $250000 to $300000 10,070 over $1000000 2,838

19. Number of LA Taxpayers Filing Schedule A with Federal Tax Returns 160,000 140,000 About 25% of LA Taxpayers 120,000 100,000 80,000 60,000 40,000 20,000 0 <$25,000 >$25,000, but <$50,000 >$50,000, but <$100,000 >$100,000, but <$200,000 >$200,000

20. Estimated Itemized Deductions, 2014 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0

21. Tax Increase Due to Eliminating EID, from $0 to $100,000 $600 $500 $400 $300 $200 $100 $0 $0 to $5000 $5000 to $10000 $10000 to $15000 $15000 to $20000 $20000 to $25000 $25000 to $30000 $30000 to $40000 $40000 to $50000 $50000 to $60000 $60000 to $70000 $70000 to $80000 $80000 to $90000 $90000 to $100000

22. Tax Increase Due to Eliminating EID, $100,000 and up $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0

23. Individual Income Tax Increase Relative to Average Federal Adjusted Gross Income Due to Eliminating Excess Itemized Deductions for taxpayers itemizing at the federal level 1.2% 1.0% 420,252 Louisiana taxpayers who Itemize at Federal Level 0.8% Raises approximately $350 million 0.6% 0.4% 0.2% 0.0%

24. 24 Current Brackets, but eliminate all Credits 1.60% Net Capital Appreciation, Film, inventory, historic 1.40% +$427.1 million 1.20% EITC 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2/28/2025

25. 25 Current Structure and No Credits 1.60% +$337.8 million 1.40% Net capital Appreciation And inventory/ Natural gas 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2/28/2025 without film and historic WITH film and historic

26. 26 Brackets 2/28/2025

27. Present Brackets and Rates Applied to Louisiana Taxable Income Single Filer Joint Filer Louisiana Taxable Income Rate Louisiana Taxable Income Rate $0 to $12,500 2% $0 to $25,000 2% $12,501 to $50,000 4% $25,001 to $100,000 4% > $50,000 6% > $100,000 6% Actual Tax Liability will be a based on the Louisiana Taxable Income, the rates that apply, and then any tax credits that reduce the tax liability Actual Tax Liability will be a based on the Louisiana Taxable Income, the rates that apply, and then any tax credits that reduce the tax liability

28. Stelly Brackets Applied to Louisiana Taxable Income Joint Filer Single Filer Louisiana Taxable Income Rate Louisiana Taxable Income Rate $0 to $12,500 2% $0 to $25,000 2% $12,501 to $25,000 4% $25,001 to $50,000 4% > $25,000 6% > $50,000 6% Actual Tax Liability will be a based on the Louisiana Taxable Income, the rates that apply, and then any tax credits that reduce the tax liability Actual Tax Liability will be a based on the Louisiana Taxable Income, the rates that apply, and then any tax credits that reduce the tax liability

29. 29 Just Changing the Brackets 0.70% Stelly Brackets +$365.4 million 0.60% Maximum increase is about $935 starting at about $140,000 of FAGI % Change in Income Tax Paymetns 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2/28/2025

30. 30 EID Taxpayers Stelly Brackets and EID Capped at $10,000 0.80% 0.70% +$291.9 million % Change in Income Tax Payments 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2/28/2025

31. 31 EID Taxpayers Current Brackets Stelly Brackets 0.80% 0.70% % change in Tax Paymetns 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2/28/2025

32. 32 EID Taxpayers +$690.1 million 2.50% Stelly Brackets, EID and FITD capped at $10,000 % Change in INcome Tax Payments 2.00% 1.50% 1.00% 0.50% 0.00% 2/28/2025

33. 33 All Taxpayers: Stelly Brackets and $10,000 Cap on EID and FITD 2.50% Non-itemizers Itemizers +$932.8 million 2.00% % change in tax payments 1.50% 1.00% 0.50% 0.00% 2/28/2025

34. Exemptions, Deductions, and Credits Exemption or Deduction Keep or Not Keep Modification Revenue Involved Task Force Recommendation Standard Deduction/Personal Exemption Keep $253.9 million Dependents Keep $31.8 million Federal Tax Liability Do Not Keep Up to $5,000/$10,000 $877.8 million Excess Itemized Deductions Do Not Keep Up to $7,500 $349.0 million $6,000 Exclusion Do Not Keep $24.4 million LSERS/TRSL/ Others Up to $60,000 Complication is DROP Accounts $93.6 million Federal Up to $60,000 $32.0 million SS Benefits $102.0 million Military Pay/Disability Keep $6.0/$5.2 million

35. Exemptions, Deductions, and Credits Exemption or Deduction Keep or Not Keep Modification Revenue Involved Task Force Recommendation Net Capital Gains Do Not Keep $53.9 million; unsure of fiscal impact Changes made in 2016 sessions could provide sunset School Tuition Fees, Quality Public Education START Deduction Do Not Keep Do Not Keep $22.6 million $3.0 million Do Not Keep $2.3 million Recreation Volunteer Volunteer Firefighter Do Not Keep $0.02 million Do Not Keep $0.06 million I.R.C. Section 280C Expense Home Schooling Do Not Keep $0.52 million Do Not Keep $0.24 million

36. Exemptions, Deductions, and Credits Tax Credit Keep or Not Keep Modification Revenue Involved Task Force Recommendation Net Income Taxes Paid to other States Keep $60.3 million Child Care-based on federal credit Keep $18.3 million EITC Keep $48.9 million Education ($25) Do Not Keep $10.5 million School Readiness Do Not Keep $14.6 million Motion Picture Eliminate, but pay for outstanding credits Historic Tax Credit Maintain as is $37.2 million Inventory/NG Reduce to 50% of value Vessel/Telephone Keep Citizens Property Do Not Keep $29.4 million, but already reduced Solar Maintain current law