Friday, April 22, 2005

Stelly plan doing as intended...

A CityBusiness staff report, from their daily newsletter:

BATON ROUGE — Jim Brandt, president of the Public Affairs Research Council of Louisiana Inc., said the Stelly Plan is under siege. But the tax reform passed in 2002 is doing the job it was intended to do, Brandt said. He said there is no reason to repeal or even modify the Stelly Plan, which is named after Vic Stelly, who wrote the bill.

"While there has been no groundswell of public opinion against the plan, some legislators are attempting to create one," Brandt said. "Others apparently feel compelled to respond to the complaints of a vocal few among the small minority of taxpayers who experienced a net tax increase under the plan. Those attacking the plan, however, are condemning it for doing exactly what it promised to do."

Brandt said an in-depth study shows 79.3 percent of all tax filers in Louisiana received a net tax reduction. This supports the earlier predictions that the vast majority of taxpayers would benefit from the plan.

In 2002, voters approved the constitutional amendment enacting the tax swap plan, which permanently exempted purchases of food and utilities for home use and prescription drugs from state sales taxes.

The plan increased the state personal income tax collections and tax brackets were increased on higher incomes with small breaks at the lower end.

More than half of the increase in 2003 came from eliminating the 65 percent deduction for taxpayers who itemize. This deduction affects only the 20 percent of taxpayers, primarily in higher income levels.

Bills to restore the deduction have been filed with numerous co-authors, Brandt said. Removing the deduction would undo the tax swap, reduce revenues by roughly $240 million and deny the state a relatively small annual revenue growth. A proposed 10-year phase-in of the deduction would ease the transition but still effectively unravel the plan.

The Stelly Plan objectives were to slash the use of temporary taxes; reduce reliance on regressive sales tax and give low-income families some tax relief; shift the tax burden to income tax; and make the overall state tax structure slightly more growth-oriented. According to a recent Legislative Fiscal Office analysis of the first full year impact, the plan appears to be meeting all of these objectives, Brandt said.

The LFO analyzed the Stelly impacts on three basic types of filers in 30 income classes.

"The Stelly Plan was no one’s idea of the perfect tax reform, however, it was an important first step toward a more rational tax structure by providing greater equity and stability," Brandt said. "Undercutting the plan now to placate a small minority of primarily higher income taxpayers who experienced tax increases would be a significant step backwards."


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