Fiscal cliff negotiations could lead to less tax revenue for Louisiana

Louisiana has a lot at stake in the current fiscal cliff negotiations and it’s not only because the state gets more federal assistance — $1.10 — for every dollar its taxpayers send to Washington. Louisiana is also one of three states that allow all federal income taxes to be deducted from income subject to state taxes, and if federal taxes go up as President Barack Obama has proposed, and House Republican leaders now accept, though on different terms, the state can expect less tax revenue.

And it’s already facing a budget shortfall in 2013.

While most of the attention during the fiscal cliff negotiations has been on whether to increase taxes on families earning more than $250,000 a year as proposed by the president, there’s also a lot at stake for low-income Louisiana residents.

Mainly, at issue is whether expanded child tax credits and earned income tax credits for low income working families enacted over the last decade will be extended, or allowed to expire at the end of the year.

The Center on Budget and Policy Priorities estimates that a single mom with two kids working full time at the minimum wage would see her child Tax Credit drop from $1,725 to $173 if the expanded benefits aren’t extended.

“These programs are critical to keeping low-income families and children — who have been hit hardest by the Great Recession — above the poverty line and need to be preserved in their current form,” said Jan Moller, director of the liberal Louisiana Budget Project.

Pat Brister, the Republican president of St. Tammany Parish, said it is hard for anyone in local government to plan for 2013 and beyond not knowing what will happen to federal assistance and taxes.

“Already the state has received significant cuts in Medicaid and now because Congress and the president haven’t done their jobs to reach an agreement we don’t know what will happen to federal funding and taxes and that’s very disconcerting to those trying to make plans,” Brister said.

From a business standpoint, Michael Hecht, president and CEO of Greater New Orleans Inc., said he’d like to see the Obama administration and Congress reach an agreement that, at least, doesn’t make “already disadvantaged small businesses,” worse off.

Obama wants an end to Bush tax cuts on income over $250,000 for a family, while Republicans favor eliminating some tax breaks and deductions and more spending cuts and cost-cutting for Medicare and Social Security than favored by the president. Both sides contend their proposals are better for small businesses.

Hecht said the most important thing, though, is for Congress and the president to reach a fair agreement.

“Business hates uncertainty and are holding onto cash instead of investing or hiring new people until they know what their tax rates are going to be,” Hecht said. “If we can come up with a reasonable agreement, I think it will spur the economy and give confidence, not only to business in the United States, but international investors, as well, that our government can take the actions needed to tackle our fiscal problems.”

Tulane University President Scott Cowen raises the concern that continued impasse would not only raise taxes for all Americans, but produce significant cuts in federal spending that provide grants and loans for college students and scientific and medical research so critical to his university and other colleges.

Surprisingly, the uncertainty has created a temporary benefit — some Tulane supporters, fearful that charitable giving deductions will be reduced under a possible tax deal, have been making unexpected end-of-the-year donations to the university. Still, Cowen said no one will do well if an agreement isn’t reached.

“I think what we all are saying is this is a monumental issue for our country, and Congress and the president are going to have to resolve it,” Cowen said. “So put aside the rhetoric and the blustering and get to work and solve the problem.”

In the heavily Democratic Second Congressional District, Rep. Cedric Richmond, D-New Orleans, says he’s hearing a message that the president and congressional Democrats should stand firm on a budget deal that makes the top earners pay “a little bit more in taxes.” He said the working class and poor have already paid a price with $1.7 trillion in budget cuts, and now it’s only appropriate that the wealthy who have mostly continued to prosper during the economic downturn pay a bigger share.

But in the mostly Republican First Congressional District majority, GOP Rep. Steve Scalise of Jefferson is mostly hearing calls for the GOP to stand firm against higher taxes, according to spokesman Stephen Bell.

In other words, compromise isn’t going to be easy.

Moller, the head of the Louisiana Budget Project, said the consequences will be significant — whatever agreement or non-agreement comes from this post-election negotiating process.

“The fiscal cliff represents a real threat to Louisiana working families,” Moller said. “As Congress and the president work to resolve this problem, they should make sure the tax code does not become less progressive and that low-income working families continue to get the help they need to make ends meet and reach their full potential. Congress also must ensure that any changes to federal entitlement programs such as Medicaid do not end up shifting costs to the states, which cannot afford additional burdens.”