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Two Takes on the "Stelly Plan"

April 28, 2004

Mark Miester
Phone: (504) 865-5714

mark@tulane.edu

There's a term for it: Stelly sticker shock. It's what Louisiana taxpayers have been feeling in recent weeks as they hunker down to complete their Louisiana state income tax returns.

stellyMany taxpayers are discovering that their income tax has increased, or even doubled, since last year.

The reason is the so-called Stelly Plan, the voter-approved constitutional amendment that swapped the elimination of state sales tax on food, utilities and prescription drugs with an increase in state income tax for middle- and upper-income wage-earners.

The tax reform package, spearheaded by Rep. Vic Stelly, a Republican from Lake Charles, won a surprise approval from voters in November 2002, but now that taxpayers are seeing the effects of the first full year under Stelly, some are crying foul.

For what it's worth, Beau Parent thought it was foul from the start.

"I thought it was an awful deal when it was proposed and I tried to convince everybody I talked to not to vote for it," says Parent, instructor of accounting at the A. B. Freeman School of Business. "It's a gigantic increase in income taxes, especially for middle-income people, and that's not the way it was sold."

According to Parent, the Stelly Plan was pitched to voters as revenue neutral, meaning the plan would not result in an increase in taxpayer money to the state. Two similar tax restructuring plans proposed by Stelly were defeated by voters in 2000 largely because they were not revenue neutral, which many voters perceive as a tax increase.

While the Stelly Plan was revenue neutral in its first year, it is projected to generate increased revenues for the state over time as personal incomes rise. More egregious to Parent is the fact that Louisiana's middle- and upper-income taxpayers are being forced to make up for $300 million in lost sales tax revenue, revenues formerly paid by 100 percent of the population.

"Besides raising taxes, they created more welfare for the low-income or no-income tax people--the non-wage-earners of the state--and they've put the burden on the wage earners," he says.

Parent adds that he expects the legislature eventually to bring back the sales tax--without reducing income tax. Law professor M. David Gelfand, on the other hand, believes the Stelly Plan is a step in the right direction for Louisiana.

"Any tax system that shifts to a more progressive basis is desirable," says Gelfand, Ashton Phelps Professor of Constitutional Law. Tax systems that rely heavily on sales tax are traditionally viewed as being unfair to low-income individuals, who spend a greater percentage of their wages than high-income individuals on food and utilities.

While he acknowledges that the wealthy are shouldering a larger tax burden under the Stelly Plan, Gelfand doesn't have much sympathy for their objections. Compared to other states, Gelfand says Louisiana's income tax remains relatively low and our property taxes are extraordinarily low. According to Gelfand, reducing sales tax and increasing income tax is just a first step.

"Until we confront the inequities in the property tax system, it's going to be very hard to go forward," Gelfand says. "The Stelly Plan only speaks to sales tax and income tax. We need to speak to property tax as well, because the property tax has a substantial regressive component. Until we address that, we're not going to get our tax system onto a 20th century--let alone a 21st century--basis."

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Tulane University, New Orleans, LA 70118 504-865-5000 website@tulane.edu