02/13/2009
Some random thoughts on a Friday the thirteenth…
THE FINANCIAL CRISIS: a recent analysis by Bloomberg News caught my eye. It estimated that the total federal response to the financial crisis thus far (the stimulus legislation, bailouts, plus the vast infusion of “liquidity” into the financial system) comes to $9.7 trillion. It is almost impossible to envision how big $9.7 trillion is, but here are some illustrations:
It would pay off 90 percent of all the home mortgages in the United States.
It would take spending $13.2 million a day from the birth of Christ until today to equal $9.7 trillion.
It is 13 times more than what has been spent on the Iraq and Afghanistan wars combined.
It could be used to write a check for $1430 to every man, woman, and child alive on the planet today.
It is more than three times the annual federal budget.
Our leaders had better come up with a plan that will work to solve this crisis. There isn’t another $9.7 trillion available for them to take a mulligan on addressing the problems. It is incredible that Congress has rushed to pass a stimulus bill that will cost taxpayers over $1 trillion once the interest on the borrowing is figured in. It is the biggest single piece of appropriations legislation in history, and it is supposed to help reverse a dire economic crisis—yet few will know exactly what they are voting on when the votes are cast. That is a bad way to do business.
THE STATE BUDGET: the Revenue Estimating Conference (REC) is scheduled to meet next week in Baton Rouge. The REC just met in December and usually meets again in May, so it is somewhat unusual for it to be meeting in February. It is highly unlikely that the economists who develop the revenue forecasts for the REC will have any new data that will significantly change the revenue estimate. If that is the case, there is only one reason for the meeting: to certify money coming from the federal stimulus legislation as recurring revenue. If that is done, it would soften the budget cuts that the Jindal administration must submit in its executive budget that must be presented to the Legislature in March. If those revenues are truly recurring in nature, then the REC meeting would be timely. If the revenues are only going to be around for a year or two with no guarantee of them continuing in the future, it will be tantamount to kicking the can down the road for the governor and Legislature to use the money to fund recurring expenses in the budget.
THE LARGEST BUSINESS TAX INCREASE IN LOUISIANA HISTORY: If some legislators and assessors have their way in the upcoming legislative session, businesses in Louisiana could see the biggest hike in their tax burden in modern history. How? By the enactment of a significant increase the homestead exemption which, at $75,000, is at the top of the list in the nation. Currently, $680 million in property tax is shifted from some homeowners to other homeowners and businesses due to the high homestead exemption level. If the exemption is doubled, it would automatically result in a large roll-up of millages to offset the drop in taxable property. Those who pay property taxes would pay much more, and businesses currently pay 80 percent of all property taxes in Louisiana. If the governor and the Legislature don’t want to stifle jobs and make Louisiana even less attractive for economic development, they should nip this huge tax increase in the bud.
Wednesday, February 18, 2009
Tuesday, February 10, 2009
Small Business Tax Increase
February 9, 2009
The 2009 legislative session begins April 27, 2009 in Baton Rouge. So far there has been little or no talk of tax increases at the state level, but don’t let that fool you. During the session legislators will be debating proposals to enact one of the largest property tax increases on small business in the history of the state – by increasing the homestead exemption!
Homestead Exemption Shifts Property Tax Burden to Business
Increasing the homestead exemption would further remove residential property and improvements from the property tax rolls, thereby decreasing total assessed values in each parish. Our state constitution requires that, when assessed values decrease, millage rates automatically increase, so that the local taxing bodies will continue to generate the same revenue as collected in the prior year. Increasing the homestead exemption does not result in lower tax collections or lower tax rates – but, rather the tax burden of residential homeowners is passed on to businesses, renters, and middle-class homeowners by imposing higher millage rates necessary to generate the same tax collections as the prior year.
Louisiana’s $75,000 homestead exemption is already one of the highest in the country. The result – over 50% of Louisiana homeowners pay ZERO property tax! Other fixed-income homeowners, who are 65 years old and older and make less than $64,500, receive the benefit of special level assessments that freeze their property values. On the other hand, 100% of businesses pay property tax, which is why business and industry pays over 80% of all of the property taxes paid in the state.
Small Business Already Hurt by Current Homestead Exemption
Today, the homestead exemption shifts in excess of $650 million of the residential property tax burden to businesses, renters, and middle-class homeowners. Projections show that as all of the remaining residential property in the state approaches $75,000 in value, another $250 million tax increase will be shifted to business, even if there is no change in the current homestead exemption.
The ultimate cost of fully implementing the current $75,000 homestead exemption will be over a $900 million tax increase on the small businesses of our state. This does not take into account any increases in the homestead exemption that will be considered during the regular session – simple math would suggest that doubling the homestead exemption to $150,000 would eventually result in a total tax increase to business in excess of $1.8 billion!
Business Pays at a 50% Higher Tax Rate
Under current law, businesses pay property tax at a 15% tax rate (some businesses even pay 25%), while the homeowner’s tax rate is only 10% -- that’s a 50% higher tax rate paid by business. This disparity is illustrated as follows.
HOMESTEAD BUSINESS
PROPERTY PROPERTY
FAIR MARKET VALUE $100,000 $100,000
ASSESSMENT RATE X 10% X 15%
ASSESSED VALUE $10,000 $15,000
LESS: HOMESTEAD EXEMPTION ($7,500) N/A
TAXABLE VALUE $2,500 $15,000
PROPERTY TAX (100 MILLS) $250 $1,500
The Solution – Limit Millage Roll-Forwards
Rather than increasing the homestead exemption and special level assessments, the resolution of higher property tax bills needs to be properly focused on its root cause – property tax millage rates. When assessors perform their constitutional function of valuing property at fair market value, the higher property values result in an automatic roll-back of millages. Generally, the combination of higher property values and reduced millage rates has the overall effect of leveling off property tax bills, which benefits all taxpayers, not just a few select classes of homeowners.
However, following the automatic roll-back of millages, local taxing bodies are authorized under the state constitution, and without voter approval, to roll-forward millage rates with only a two-thirds vote of the members of the taxing body. It is this subsequent rolling-forward of the millage rates, and not the reassessment of property to current fair market value, that produces sticker shock property tax bills. Many of these taxing bodies that choose to roll-forward their millages are not even elected officials, but rather appointed members of boards that have the power of taxation.
Limiting the ability of taxing bodies to roll-forward millages without voter approval will help lower both property tax millages rates and the property tax bills of all taxpayers.
Action Needed – Now!
The proponents of increasing the homestead exemption are getting their message out, and even circulating a petition for signatures. Your legislators need to hear from you TODAY – don’t wait until the session starts, and don’t assume they will be with us. Tell them, as business owners, we are already paying $650 million of the property tax burden of homeowners and enough is enough! Also tell them the focus needs to be on the millage rates, and limiting the rolling forward of millages will result in lower overall millage rates for all taxpayers.
Click the link below to log in and send your message:
http://www.votervoice.net/link/target/labi28823666.aspx
Wednesday, February 4, 2009
The Politics of Stimulus!
01/30/2009
During the last decade, Republican members of Congress have taken a beating in elections around the country. In most instances, those who lost elections-or whose vacant seats were turned over-were replaced by Democrats who proclaimed to be moderate or conservative. Most of those Democrats belong to the "Blue Dog" coalition. The hallmark of this caucus is their self-proclaimed strong belief in conservative fiscal policies. The Blue Dogs could hold the balance of power in the House, especially on budgetary issues-if they were willing to buck their liberal leadership and occasionally join with Republicans.
The Blue Dogs recently had such an opportunity. On January 27, the House voted on the resolution that would allow the leadership's "stimulus" bill to come to the floor. Most of the Blue Dogs felt that the bill contained entirely too much spending and was out of line with what President Obama claimed he wanted in a stimulus package. Had most of the Blue Dogs voted against the resolution, the bill would have gone back to the drawing board along with a clear message to Speaker Pelosi and her leadership that a more conservative approach was needed. The Blue Dogs would have served the nation well by taking such an action and would have put Speaker Pelosi on notice that they were a force to be reckoned with.
Unfortunately, as has happened numerous times in the past, when push came to shove, the Blue Dogs stayed on the porch.
The massive spending bill ($1.2 trillion if you count the interest on the borrowing, which certainly is a legitimate element to count) was passed without a single Republican vote and with only 11 Democrats opposing it. It is the total property of the Democrats. If it does what they claim it will do, they can take the credit. If it doesn't create 4 million jobs, if it doesn't begin to immediately jumpstart the economy, and if it only leads to bigger government and super-inflation, they will shoulder the blame.
That must be an uncomfortable thought for many of the Blue Dogs. Their constituents are certainly concerned about the health of the economy and the security of their jobs. But most of them aren't likely to believe that adding greatly to the size of government (financed through more borrowing) is going to improve the economy to any appreciable degree. That is a dilemma for the Blue Dogs, since the one thing certain about the House passed version of the bill is that it will greatly expand government and pay for the expansion by burdening future generations. The champions of "pay-go" (not allowing any tax cut or increased spending without paying for it with budget reductions or new taxes) went for the biggest increase in deficit spending in history because they couldn't stand up to their liberal leadership.
If the Democratic stimulus bill doesn't work, the Blue Dogs have a problem. If their constituents are taxed later to pay for this extravagance, they have a larger problem. If inflation soars when the economy starts to rebound because the "stimulus" wasn't designed to work immediately, they have a lot of explaining to do.
The most vulnerable Democrats are those who come from districts that were held previously by Republicans. To remain in good standing with their fiscally conservative constituents, they can't simply talk a good game in Washington. They lost an opportunity to shape a more conservative approach on the stimulus, and they may live to regret not having the courage to stand up for what they say they championed.
During the last decade, Republican members of Congress have taken a beating in elections around the country. In most instances, those who lost elections-or whose vacant seats were turned over-were replaced by Democrats who proclaimed to be moderate or conservative. Most of those Democrats belong to the "Blue Dog" coalition. The hallmark of this caucus is their self-proclaimed strong belief in conservative fiscal policies. The Blue Dogs could hold the balance of power in the House, especially on budgetary issues-if they were willing to buck their liberal leadership and occasionally join with Republicans.
The Blue Dogs recently had such an opportunity. On January 27, the House voted on the resolution that would allow the leadership's "stimulus" bill to come to the floor. Most of the Blue Dogs felt that the bill contained entirely too much spending and was out of line with what President Obama claimed he wanted in a stimulus package. Had most of the Blue Dogs voted against the resolution, the bill would have gone back to the drawing board along with a clear message to Speaker Pelosi and her leadership that a more conservative approach was needed. The Blue Dogs would have served the nation well by taking such an action and would have put Speaker Pelosi on notice that they were a force to be reckoned with.
Unfortunately, as has happened numerous times in the past, when push came to shove, the Blue Dogs stayed on the porch.
The massive spending bill ($1.2 trillion if you count the interest on the borrowing, which certainly is a legitimate element to count) was passed without a single Republican vote and with only 11 Democrats opposing it. It is the total property of the Democrats. If it does what they claim it will do, they can take the credit. If it doesn't create 4 million jobs, if it doesn't begin to immediately jumpstart the economy, and if it only leads to bigger government and super-inflation, they will shoulder the blame.
That must be an uncomfortable thought for many of the Blue Dogs. Their constituents are certainly concerned about the health of the economy and the security of their jobs. But most of them aren't likely to believe that adding greatly to the size of government (financed through more borrowing) is going to improve the economy to any appreciable degree. That is a dilemma for the Blue Dogs, since the one thing certain about the House passed version of the bill is that it will greatly expand government and pay for the expansion by burdening future generations. The champions of "pay-go" (not allowing any tax cut or increased spending without paying for it with budget reductions or new taxes) went for the biggest increase in deficit spending in history because they couldn't stand up to their liberal leadership.
If the Democratic stimulus bill doesn't work, the Blue Dogs have a problem. If their constituents are taxed later to pay for this extravagance, they have a larger problem. If inflation soars when the economy starts to rebound because the "stimulus" wasn't designed to work immediately, they have a lot of explaining to do.
The most vulnerable Democrats are those who come from districts that were held previously by Republicans. To remain in good standing with their fiscally conservative constituents, they can't simply talk a good game in Washington. They lost an opportunity to shape a more conservative approach on the stimulus, and they may live to regret not having the courage to stand up for what they say they championed.
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