As lawmakers discuss how to fix the state budget shortfall and change the tax structure to prevent recurrence, “Stelly” keeps coming up.
“Once we gave up both sides of the Stelly equation, we’ve been in a jam for 7 years,” observed House Ways and Means vice-chair Julie Stokes.
But who or what is Stelly?
Vic Stelly was a Lake Charles Representative, who authored a tax restructuring plan the voters approved in 2002. It was designed to prevent the budget problems Louisiana currently faces.
“You know, one of goals of Vic Stelly was to enhance growth – to get the state’s revenue base growing,” Legislative Fiscal Analyst Greg Albrecht explained.
The Stelly Plan, as it was known, upped personal income tax brackets in exchange for removing the 4-cent state sales tax on food, utilities and drugs. It also did away with the state income tax exemption for federal itemized deductions.
After Hurricane Katrina, lawmakers repealed Stelly piecemeal, starting with excess itemized deductions.
“In 2008, it was brought back at 100%.” Revenue Secretary Kim Robinson said that benefitted some. “Only 24% of taxpayers itemize.”
Stokes, who is a CPA, said that deduction has never made sense.
“A great portion of your excess itemized deductions are the deduction for your state income tax, so you are being allowed to deduct your state income taxes against your state income tax, which makes no sense.”
After re-instituting the excess itemized tax deduction, the Legislature rolled back the tax brackets the following year, leaving only the sales tax exemption portion of Stelly in place.
Stokes observed that put a halt to overall growth in revenue.
“Food, utilities and drugs – those are some of the only sales taxes that do grow,” Stokes said. “So, we flat-line sales tax and we gave up the income tax that does grow at a higher rate.”
Part of the budget fix being discussed now includes repealing the repeals of Stelly.