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KNOW THE FACTS: Tax proposal critiques ignore crucial facts

February 14, 2013

BATON ROUGE - Today, both the Baton Rouge Advocate and Gannett News printed stories concerning the Governor's ideas for tax reform that were one-sided and lacked fact-checking and opposing views of how the reforms could benefit Louisiana. The stories were based on comments made by a special interest group.

Both stories simply cited the group's comments as facts and lacked an opposing view about how eliminating the personal and corporate income tax could help Louisiana's economy grow. For instance, multiple studies show that companies and people move to places where taxes are lower. Additionally, the Gannett article cited as fact a report issued by the Institute on Taxation and Economic Policy (ITEP) that erroneously claims the effects income tax reform would have on Louisiana by ignoring many key factors and making false assumptions.

Below are a number of key facts and figures that were left out of the Advocate and Gannett stories:

Studies Show That States Without An Income Tax Create More Jobs:

Studies Show That Between 2002 And 2012, 62% Of The Three Million New Jobs In America Were Created By The Nine States Without An Income Tax. “A new analysis by economist Art Laffer for the American Legislative Exchange Council finds that, from 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax, though these states account for only about 20% of the national population.” (Editorial, “The State Tax Reformers,” Wall Street Journal, 1/29/13 http://online.wsj.com/article/SB10001424127887323968304578245720280333676.html)

“The No-Income Tax States Have Had More Stable Revenue Growth, While States Like New York, New Jersey And California That Depend On The Top 1% Of Earners For Nearly Half Of Their Income-Tax Revenue Suffer Wide And Destabilizing Swings In Their Tax Collections.” (Editorial, “The State Tax Reformers,” Wall Street Journal, 1/29/13 http://online.wsj.com/article/SB10001424127887323968304578245720280333676.html)

Reporting Based On A Debunked Institute on Taxation and Economic Policy (ITEP) Study:

Gannett News Bases Reporting On An ITEP Study That Is Greatly Flawed And Has Been Debunked. “A previous study of what’s known about the governor’s plan said it appears to present a tax increase for 80 percent of Louisiana taxpayers but a significant tax break for the top 20 percent of wage earners and businesses.” (Mike Hasten, “Studies Question Wisdom Of Swapping Taxes,” Gannett , 2/13/13 http://www.theadvertiser.com/article/20130213/NEWS01/130213032/Studies-question-wisdom-swapping-taxes?nclick_check=1)

The ITEP Study Is Deeply Flawed:

ITEP Uses “Worst-Case Scenario” Figures To Conduct Their Study, Figures That Are Not Under Consideration For the Plan.“ITEP’s numbers do not reflect reality. ITEP falsely assumes a ‘worst-case scenario’ in which every dollar in state revenue lost from the elimination of the personal income tax (PIT) and the corporate income and franchise taxes (CIFT) is restored solely by increasing the state sales tax rate. Under those conditions, the state sales tax rate would need to be 7.94% to make up the lost revenue. No scenario currently under consideration requires a sales tax rate nearly that high.” (“Know the Facts: ITEP Sidesteps the Truth,” Louisiana Department Of Revenue, 1/23/13 http://taxtopics.revenue.louisiana.gov/2013/01/23/know-the-facts-itep-sidesteps-the-truth/)

ITEP Does Not Factor In To Its Study Offsets For Low-Income Groups That Are Being Considered, Including An Earned Income Tax Credit. “ITEP’s financial scope is distorted. ITEP does not factor in an offset (such as an Earned Income Tax Credit [EITC] or some other mechanism). News reports available to ITEP reveal that a variety of offset mechanisms for low-income people are currently being discussed and analyzed. The state is determined to ensure that the final proposal will make no Louisiana citizen worse off.” (“Know the Facts: ITEP Sidesteps the Truth,” Louisiana Department Of Revenue, 1/23/13 http://taxtopics.revenue.louisiana.gov/2013/01/23/know-the-facts-itep-sidesteps-the-truth/)

ITEP’s Study Ignores Key Factors, Such As The Fact That Many Essential Goods Are Exempt From State Sales Tax. “ITEP’s scheme ignores key facts. Food for home consumption, prescription drugs, and residential utilities are exempt from state sales tax. Expenditures such as rent or housing costs, insurance costs, etc. are also not subject to state sales tax. So, in order for ITEP’s study to be remotely accurate, a taxpayer with an income of $25,000 must spend $23,500 per year on things like clothing, restaurants, electronics, home supplies (cleaning supplies, home maintenance supplies, etc.), some forms of entertainment, etc. It is extremely unlikely that the average person with income at $25,000 exhibits such exorbitant spending habits.” (“Know the Facts: ITEP Sidesteps the Truth,” Louisiana Department Of Revenue, 1/23/13 http://taxtopics.revenue.louisiana.gov/2013/01/23/know-the-facts-itep-sidesteps-the-truth/)

The Non-Partisan Tax Foundation Said The Louisiana Tax Reform Plan Would Greatly Improve The State’s Standing Nationally:

The Tax Foundation, A Non-Partisan Tax Research Group, Stated That If The Louisiana Tax Reform Plan Is Passed, The State Would Move From 32nd To 4th Overall On The List Of Best State Tax Structures. “For now though, all told, the changes would bounce Louisiana from 32nd to 4th overall on our list of tax structures (assuming the changes were in place as of July 1, 2013).” (Richard Morrison, “Louisiana Tax Reform: Sizing up the Jindal Plan,” The Tax Foundation, 1/18/13 http://taxfoundation.org/blog/louisiana-tax-reform-sizing-jindal-plan)

Tax Foundation: “This Plan Is A Step In The Right Direction. Corporate And Individual Income Taxes Are Generally Considered The Most Destructive Taxes To Economic Growth, And Both Have A Great Deal Of Complexity And Compliance Costs Associated With Them. Elimination Yields A Perfect Score In Those Components Of The Index.”(Richard Morrison, “Louisiana Tax Reform: Sizing up the Jindal Plan,” The Tax Foundation, 1/18/13 http://taxfoundation.org/blog/louisiana-tax-reform-sizing-jindal-plan)