State economist: ‘Fiscal cliff’ tax hikes would cost Louisiana at least $260M

If some of the Bush-era tax cuts are allowed to expire as scheduled next year, there’s no doubt that Louisiana will lose revenue. The only question is, how much? The state allows income tax filers to deduct the cost of their federal taxes from their taxable state income. So when federal income taxes go up, the amount of income taxable by the state goes down. Greg Albrecht, chief economist for the Legislative Fiscal Office, says for now he’s assuming something similar to President Barack Obama’s proposal to stave off the so-called fiscal cliff will be enacted, which would preserve the tax cuts for all but the highest earners. That would cost the state about $124 million, he says. The full fiscal cliff effect, whereby all rates revert to their Clinton-era levels, would cost at least $260 million, Albrecht estimates. The impact would kick in late in the 2013-14 fiscal year. “In fiscal 2014, we’re going to be giving a lot more refunds,” predicts economist Jim Richardson, a member of the state’s Revenue Estimating Conference, who joined Albrecht as guest speaker at the Baton Rouge Press Club today. Decoupling state income tax collections from federal rates would be one way to reduce the volatility that leads to midyear budget cuts every year, Richardson suggests. He says it would help to not use all of the more unpredictable revenue sources in the state’s operating budget, such as mineral revenues or corporate taxes, although that would require difficult spending decisions by the Legislature. —David Jacobs