By Steve Spires
As the Revenue Study Commission turns its focus to individual income-tax exemptions, it’s a good time to look at how these tax breaks are distributed. While all income groups get some benefit from state income-tax credits, the largest share of the credits—by far—are claimed by a small sliver of very wealthy taxpayers.
Nearly 1.9 million Louisianans filed individual income-tax returns with the state in fiscal year 2011, claiming a total of $422.6 million in refundable and non-refundable credits. But 40 percent of these credits were claimed by 3,310 taxpayers who had adjusted incomes above $1 million, according to the Department of Revenue’s annual report.
These millionaire taxpayers represent just 0.18 percent of all filers, and received an average credit of $51,000. The top 2.3 percent of taxpayers—those with adjusted gross incomes of $200,000 or more—claimed 55 percent of all individual income-tax credits.
At the other end of the spectrum are those who made less than $30,000 in adjusted gross income—more than half of all filers. These households received only 22 percent of the value of income tax credits, an average of around $100 per household.
Louisiana has several dozen individual income-tax credits among the 468 exemptions, deductions, credits and rebates that cost the state $4.8 billion a year. The individual credits are designed to reward and promote everything from investment in high-quality child care and rehabilitating historic buildings to movie production and converting vehicles to run on natural gas.
The most “valuable” credit—in terms of overall amount claimed—was the Motion Picture Investor Credit, which cost the state $85.2 million in lost individual income tax revenue (combined, all film tax credits cost the state $231 million in FY 2012). This credit is claimed almost exclusively by the wealthiest taxpayers—over 90 percent who claimed the credit have incomes of more than $250,000. Most people who claim the film credit buy them through brokers in $10,000 bundles from movie producers in order to offset the taxes they owe.
While everyone loves to see movie stars in their hometown, the subsidy program has been shown to be ineffective at generating permanent jobs, and is very costly. Louisiana only takes in $1 in revenue for every $7.29 it pays out in credits, a bad return on investment.
The real problem with tax exemptions is that every dollar Louisiana spends through its tax code is a dollar that can’t be spent on education, health care, infrastructure or public safety. Four straight years of budget cuts have led to serious reductions in needed services that disproportionately affect lower- and middle-income families—even as the state continues to pay out more and more credits that skew toward the wealthy.
Capping or reducing the value of some of these costly credits would help the state raise the revenue it needs to invest in a prosperous future, while still allowing all taxpayers—regardless of income—to claim credits that they are eligible for.
One interesting proposal came from Republican presidential candidate Mitt Romney, who suggested during a debate that a dollar amount cap be placed on the amount of exemptions, deductions and credits that each taxpayer can claim. In addition to helping raise needed revenue, an individual cap wouldn’t require the legislature to “pick winners and losers” by modifying or repealing any existing credit.
(Source: Louisiana Department of Revenue, FY 2011 Annual Report)