Report of HCR 11 Task Force on Structural Changes in Budget in addition to Tax Policy8/30/1

Report of HCR 11 Task Force on Structural Changes in Budget in addition to Tax Policy8/30/1 www.phwiki.com

Report of HCR 11 Task Force on Structural Changes in Budget in addition to Tax Policy8/30/1

Harris, Jeanne, Executive Research Fellow has reference to this Academic Journal, PHwiki organized this Journal Report of HCR 11 Task Force on Structural Changes in Budget in addition to Tax Policy8/30/161Role of The Task Force as created by HCR 11In 2010 The Commission on Streamlining Government, created during the 2009 regular session of the Louisiana Legislature, issued a report with 238 recommendations to be considered, debated, in addition to then accepted, modified, or rejected regarding the elimination, streamlining, consolidation, privatization, or outsourcing of state services with the focus on reducing the size of state government.The need as long as such action was summarized as follows: “The state of Louisiana faces a severe decline in revenues through fiscal year 2012 which, if no corrective action is taken, will leave a significant funding gap in state government expenditures in addition to will create serious sustainability issues in financing of state obligations.” In 2016 the state of Louisiana is facing the very same fiscal gap in upcoming fiscal years between the dollars generated by its revenue structure in addition to the dollars needed to pay as long as the services the state’s leaders believe are in the best interest of the state’s citizens.HCR 11 asked this Task Force to examine both spending by the state in addition to how the state pays as long as these public services.The members of the Task Force submits its recommendations to the members of the State Legislature in addition to the Governor of the State of Louisiana with our greatest admiration in addition to respect as long as their ef as long as ts on behalf of the citizens of Louisiana.8/30/162Establishing Budgetary FrameworkFundamental Purpose of Tax System: Provide sufficient revenues to fund public servicesFirst Step: Decide how much state wants to spend on public servicesSecond Step: Decide how to pay as long as these public services with the tax structure having these qualities:Short in addition to long-term stabilityFairness across in addition to among various income groupsEconomic competitiveness—ideally, a competitive tax environment will mean that special programs to attract business to the state can be minimizedSimplicity—reducing exemptions, deductions, in addition to credits that exp in addition to the length in addition to number of the tax as long as ms, that add to taxpayer compliance burdens, in addition to that create distortions in taxpayer behaviors Stability, fairness, competitiveness, in addition to simplicity are achieved with a broad tax base in addition to the lowest rates possible.8/30/163

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Louisiana in 20178/30/164Projected Budget Outlook Based on Current Expenditures in addition to Tax StructureMust Make Fundamental Decisions about SpendingAnd/or taxes in 2017 so changes, either spending or tax changes, can be implemented by Fiscal 2018.8/30/165Spending Choices in addition to Recommendations8/30/166

Examining Public Sector ProgramsIs the state presently investing too little or too much in certain activities that typically are considered to be necessary public services provided by the StateElementary in addition to Secondary Education-MFPEarly Childhood developmentTransportation in addition to InfrastructureHigher EducationHealthcareChildren in addition to family servicesWork as long as ce developmentPublic safetyCertain spending should be examined by a Task Force with special expertise on the issue. Efficiencies will not be mere budgeting exercises or reducing the number of cars being used or not filling vacant positions, but possibly fundamental changes in how a certain activity is operating. The task as long as ce should be composed of persons with expertise in the activities of the state agencies being reviewed A suggestion to make the task as long as ce’s work more meaningful is to consider suggestions contained in the Roach Plan with the Task Force to be created by a resolution of the LegislatureOption 1: Task Force recommendations to be considered by Legislature according to st in addition to ard legislature procedures, but Task Force recommendations, as amended through the legislature procedure, must be voted on by full House in addition to SenateOption 2: Task Force recommendations to be voted on as presented to Legislature in addition to will go to the Governor as long as his signature unless 60% of the Legislature votes to reject them. This Task Force must be created by created by a 2/3rd vote of the House in addition to Senate.Examining fundamental changes in the delivery of public services is a long-run project in addition to the changes must be accepted across the political spectrumTransportation in addition to Infrastructure: a task as long as ce is already reviewing-–critical issues facing U.S. in addition to every state in the union.MFP—last reviewed in the late 1990s; a real need to examine the current as long as mula in addition to the state’s contributionUpdate early childhood development changes—an issue that is getting national attentionAppropriate funding of public higher educationAppropriate retirement plans as long as “new” state employees—to avoid any future UAL 8/30/167Budgetary Practices in addition to Possible ChangesDedications in addition to non-discretionary spending—allocations that may not get appropriate legislative oversight Keep constitutional dedications; transportation; in addition to coastal restorationEliminate all other dedications, but this will not necessarily free up resources since many of these dedications support public endeavors that citizens will want to keepContractsContracts represent a method of privatization—it is a method of limiting size of government; indeed, it was the method by which Louisiana reduced its number of public employees substantially (arranging public/private partnerships with respect to the charity hospitals)Distribution of contracts: the top 50 make up a large percentage of overall cost of contractsEvery contract should be examined, but it will not by itself necessarily produce large savings; the Commission on Streamlining Government made this recommendation in 2010 Limit on Public ExpendituresMust make sure we are spending the right amount on public services at this timeRules can impose restraints on government in any emergencyThe constitutional amendment to limit the use of mineral revenues in addition to corporate income taxes represents another method of reducing the state’s ability to use volatile revenue sources to fund permanent projects these volatile revenue sources peak such as oil prices peaking in 2008 at the very same time that corporate tax collections climbed to over $1.1 billion. Amendment 5 on the November ballot serves as a method of limiting the ability of future legislatures to appropriate dollars as long as permanent operations, such as a pay increase as long as all state employees, based on the most volatile of revenues. These revenues will decline just as they can risen dramatically.8/30/168Common Cost Across State Government: Unfunded Accrued LiabilityThe state allocates UAL on a per employee basis.UAL rates range from around 21.4% as long as higher education to over 31% as long as state agencies.Initial UAL (debt incurred prior to 1989) must be paid off by 2029 according to Constitution.Debt incurred after 1989 must be paid off in 30 years.UAL payments as long as LSERS in addition to TRSL amounts statewide to about $1.5 billion in addition to will grow to about $1.7 billion per year in the mid-2020s.These payments distort the state’s support as long as various public services, such as as long as higher education in addition to the MFP—the state’s contribution of $3.4 billion is diminished by the UAL payment. Payments as long as UAL distort state support of other public services.Proposal: Gradually remove UAL as a per employee add-onWork with state agencies to work through issues of federal paymentsDevise self-generating payments as long as UAL in addition to other technical issuesThis proposal has nothing to do with possible changes in the retirement systems— it only deals with debts that have been accumulated in the past that are obligations of the state.8/30/169

Tax Choices: Sales, Individual Income, in addition to CIFT Focus on Tax Base: means definition of what is taxable in addition to any exemptions in addition to deductions thereby reducing tax base Tax Rates: Keeping as Low as possibleTax liability: means determining rates to be levied in addition to examining any tax credits which reduce tax liability8/30/1610Estimated Taxes as long as Fiscal 20178/30/1611Tax Restructuring-DecisionsFurther Increases Not in Interest of State as long as revenue enhancements or offsetsExcise—tobacco, liquor, beer–already increased (increases as long as health reasons can be considered, but state is now > Mississippi tax on cigarettes; equal to Arkansas’; in addition to lower than the Texas rate by 33 cents per pack) Excise license tax–needs to be examined in separate analysis (substantial interstate/intrastate issues to be examined)Gaming—might look at expansion of fantasy sports betting if it becomes constitutional according to federal government, but, otherwise, gaming taxes are consistent with market conditions in addition to competition from other statesOil in addition to gas—tax rates on oil in addition to natural gas have been part of tax structure since 1973 in addition to 1990 respectively. Horizontal drilling exemption was adjusted in 2015 Legislative session. We believe it could be eliminated without long-term impact on drilling in Tuscaloosa Marine Shale; obviously, it could cause some shifting of the timing of activity. Issue on oil in addition to gas revenues should be the appropriate use of these revenues.Must Focus on these taxesSales TaxTax base (exemptions in addition to exclusions)—broaden baseRates–getting it back down to 4% or lower depends on base broadeningAdministrative Issues, working towards common state in addition to local tax base, collection, in addition to auditingIndividual Income TaxDown-size exemptions in addition to deductions thereby exp in addition to ing tax base in addition to down-sizing or eliminating tax credits thereby not diminishing the tax liability; both measures permit the state to lower the tax rates that apply to ALL taxpayers Rates: select rate or rates in line with appropriate distributional impact on various income categoriesSingle rate orProgressive rate structureCIFTDefinition of Tax Base—improved by actions of Extraordinary sessions (kudos to Legislature in addition to Governor)Keep subchapter S corporationKeep net Louisiana operating lossAdd-back on deductible interest in addition to expenses, intangible expenses in addition to costs, in addition to management feesMarket sourcing of servicesChanges apportionment as long as mula as long as calculating CIFT.These are fundamental changes to provide stability to corporate income tax base in addition to to reduce the necessity of judicial rulings in disputes regarding tax obligations. The focus is now on the administration of these tax changes.Constitutional choice in November—very important concept lower rate in addition to exp in addition to baseEliminate federal tax deductibility in exchange as long as flat rate of 6.5% compared to 8.0% at top marginal rate as long as taxable corporate income above $200,000Recommends approvalTax credits with respect to CIFTKeep Subchapter S Corporation in addition to Net Louisiana Operating Loss creditsDownsize in addition to gradually eliminate Inventory tax credit in addition to natural gas creditKeeping credit as long as Offshore vessels in addition to certain telephone companies as long as U.S. constitutional reasons in addition to as long as maintaining fairness between public service property in addition to commercial propertyEliminate all other credits except as long as film credit, rehabilitation of historic structures, in addition to school readiness child care provider credit (to be covered separately)Tax CreditsMotion Picture Film Credit: Present plan to fully accommodate all credits provided prior to July 2017—back load in addition to spread payments out so as to not create fiscal issueEliminate motion picture tax credit as of July 2017 since all studies, including studies on the Louisiana motion picture tax credit, have indicated a negative rate of return—that is, the credit costs the state more than it can recover in state tax collections, either direct or indirect.Will examine any new proposal as developed by LED as it attempts to improve ROI of this tax creditRehabilitation of Historic StructuresAllow to continue per current law in addition to undergo extensive analysis as of December 2021.School Readiness Credit8/30/1612

Distribution of Current Income in addition to Sales Tax Structure8/30/1613Legislative Fiscal OfficeEstimates of Sales Tax Impact on Households8/30/1614Institute on Taxation in addition to Economic PolicyLowest 20%, <$19,000Second 20%, $19,000 to $36,000Middle 20%, $36,000 to $56,000Fourth 20%, $56,000 to $99,000Next 15%, $99,000 to $204,000Next 4%, $204,000 to $507,000Top 1%, >$507,000Goals of Tax ChangesStability: A more predictable long-term revenue streamFairness: Improvement in progressivity of overall sales in addition to income tax structureCompetitiveness: Keep Louisiana competitive with its neighborsSimplification of tax administration: A shorter in addition to less complicated as long as m as long as taxpayers in addition to increased voluntary compliance8/30/1615

Sales Tax Options8/30/1616Sales Tax Options8/30/1617Comparing Sales Tax Base with in addition to without Food, etc. at 5% in addition to 3%8/30/1618

Decision: How Much From Sales; what base; in addition to what rate8/30/1619Sales Tax AdministrationAdministrative Issues—to be coordinated with the Louisiana Sales Tax Streamlining in addition to Modernization Commission—created by Act 405 of 2015 Regular Session of the Legislatureworking towards common state in addition to local tax baseSTSMC interim report on January 15, 2016 in addition to Commission’s duties are through June 2017MME: complicated in terms of economic competitive in addition to common state/local sales tax baseAlternative: short-term, include as part of state tax base but also, as necessary, allow tax rebates as competitive conditions warrantsLong-term alternative: examine possibilities of removing from state in addition to local tax bases—but being fully aware of local collectionsBusiness utilitiesRevenue raising as long as stateNot part of local sales tax basesImpose gross receipts tax on business utilities but allow as long as certain deductions as long as industries as long as competitive purposesCollection—focus on uni as long as m collecting body as long as state in addition to localAuditingProposals are suggested in addition to recommended because they represent good tax policy in addition to not because a Market Fairness Bill may at some point pass the U.S. Congress-8/30/1620Individual Income Tax

Rates Applied to Louisiana Taxable IncomeIn as long as mation About Louisiana’s Individual Income TaxLA Taxpayers by Filing Status From IRS, 2013872,130 467,980

Harris, Jeanne Accenture Institute Executive Research Fellow www.phwiki.com

% of Taxpayers in addition to AGI by Income Groups AGI = $110 BillionTax Exemptions, Deductions, in addition to CreditsTax Exemptions, Deductions, Credits (in million of dollars, estimated FY 2017)

Exemptions We have to Face up toFederal Tax LiabilityExcess itemized deductionsThese two make up almost 60% of all exemptions in addition to creditsIf we add st in addition to ard deduction in addition to personal exemptions, we have close to 70% of all exemptions in addition to creditsRaises $748.6 million based on 2014 Tax ReturnsEliminating FID

Focus onCritical review of spending programRe as long as med tax structureSales taxBase—focusing on fairness in addition to competitiveness as well as state-local uni as long as mityRateState-local administrationIndividual income taxBase—means examining exemptions in addition to deductionsTax rate or ratesCredits thereby reducing tax liabilityCorporate income in addition to franchise taxesAdministration of recently approved re as long as msSupport as long as constitutional amendment on exp in addition to ing corporate tax base in addition to lowering corporate tax rateReducing inventory in addition to natural gas creditsLocal tax issuesProperty taxSales in addition to use taxes8/30/1658

Harris, Jeanne Executive Research Fellow

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