Stelly Plan
Encyclopedia
The Stelly Plan is a since repealed 2002 tax measure in the U.S. state
of Louisiana
designed to shift certain state sales tax
es on food for home consumption and utilities to increases in state income tax
es. Narrowly approved by voters, the proposal soon ran into criticism as middle-class taxpayers complained of paying much more in state income taxes than the amount of reduced sales taxes. The plan is named for former State Representative
Victor T. "Vic" Stelly
, a Lake Charles
Republican
, who served in the House from 1988-2004. Removal of the Stelly income tax tables began in calendar year 2009.
In the November 5, 2002, general election
, Louisiana voters approved the Stelly Plan, listed on the ballot as Act 88-2002, actually a constitutional amendment. The tabulation was 534,989 (51 percent) to 506,938 (49 percent).
, electricity
, and water for residential use was lowered on January 1, 2003, from 3.9 cents to 2 cents per dollar. Taxes on those items were then eliminated on July 1, 2003. To replace revenue lost through Stelly, individual income tax brackets were adjusted upward. Because individual tax returns for taxable year 2003 were not filed until after January 1, 2004, the withholding tax tables were revised, and the new rates went into effect on January 1, 2003.
Stelly did not affect local sales taxes on food. Only food requiring preparation at home was covered by the reduction in state sales tax. Single-use portions or restaurant meals were not affected by the Stelly Plan. Prescription drugs were already exempt from sales taxes, but Stelly placed that exemption in the state Constitution. Louisiana does not exempt over-the-counter drugs from sales tax, but such items are exempt in neighboring Texas
. Stelly also allowed the tax owed by the individual to be distributed over the year 2003. The increase in taxpayer withholding was to have been the same as the savings realized from the elimination of sales taxes under the Stelly Plan. Taxpayers making approximately $80,000 annually saw increases in total state taxes.
in 2008 repealed Stelly. The highest income brackets were returned to the level they were prior to 2003. The tax reduction began in 2009, but the state revenue department did not alter the withholding on individual income tax tables until July 1 of that year. Hence individuals did not receive more disposable income in their paychecks until after July 1 unless they had individually requested that their employers adjust their tax schedules prior to July. The repeal of Stelly could cost the state treasury some $358 million in taxes for the 2009-2010 fiscal year and somewhat less for each year thereafter.
in Lafayette
, which supported the Stelly Plan, described the measure as a "sensible fiscal measure . . . developed essentially to make income taxes, instead of sales taxes, the primary funding mechanism for government."
The Public Affairs Research Council, a business think-tank, said that the loss of income tax revenues would make Louisiana more reliant on less stable petroleum
and natural gas
revenues and creates the potential for a resumption of the "boom-and-bust cycle".
The Baton Rouge Morning Advocate editorially opposed the Stelly Plan repeal, which it determined reflects legislators yielding to pressure from higher-income taxpayers. The newspaper questioned the repeal of a progressive
income-tax-for sales-tax swap and came up with this possible explanation:
"Part of it is human nature: People benefit a little bit every day from the sales taxes eliminated in 2002 by passage of the Stelly Plan. But everybody notices when they write a larger check for state income tax. Lawmakers are responding to aggrieved, mostly affluent constituents who pay big income tax bills.
"This is a commonly cited problem with the sales tax: even the low-income folks who are hit hardest by it often don't notice, because they pay a nickel here and a nickel there rather than one big lump sum. If people don't notice the sales tax when they pay it, it's easy to understand that they wouldn't notice when (as a result of the Stelly sales tax cuts) they're not longer paying it. . . . "
at first opposed the repeal as too costly to declining state coffers but then championed it as public reaction against the measure accelerated.
Jeffrey D. Sadow
, a professor
of political science
at Louisiana State University in Shreveport
and active conservative blogger, in 2005 described the Stelly Plan, accordingly: "In essence . . . just another link in the long history of Louisiana tax policy that favors redistribution and discourages economic development. It's that kind of thinking that has gotten us into an economic mess . . . "
Several lawmakers have also opposed the Stelly Plan's removal of certain state income tax deductions. Former legislators Pete Schneider
of Slidell
, James David Cain
of Beauregarde Parish
, and Peppi Bruneau
of New Orleans
attempted unsuccessfully to restore deductions removed for charitable contributions and home mortgage interest.
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
of Louisiana
Louisiana
Louisiana is a state located in the southern region of the United States of America. Its capital is Baton Rouge and largest city is New Orleans. Louisiana is the only state in the U.S. with political subdivisions termed parishes, which are local governments equivalent to counties...
designed to shift certain state sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
es on food for home consumption and utilities to increases in state income tax
State income tax
State and local income taxes are imposed in addition to Federal income tax. State income tax is allowed as a deduction in computing Federal income tax, subject to limitations for individuals. Some localities impose an income tax, often based on state income tax calculations. Forty-three states...
es. Narrowly approved by voters, the proposal soon ran into criticism as middle-class taxpayers complained of paying much more in state income taxes than the amount of reduced sales taxes. The plan is named for former State Representative
Louisiana State Legislature
The Louisiana State Legislature is the state legislature of the U.S. state of Louisiana. It is bicameral body, comprising the lower house, the Louisiana House of Representatives with 105 representatives, and the upper house, the Louisiana Senate with 39 senators...
Victor T. "Vic" Stelly
Vic Stelly
Victor Theodore Stelly, known as Vic Stelly , is a retired businessman from Lake Charles, Louisiana, a member of the Louisiana Board of Regents for Higher Education, and from 1988-2004 a Republican member of the Louisiana House of Representatives from District 35 in Calcasieu Parish in the...
, a Lake Charles
Lake Charles, Louisiana
Lake Charles is the fifth-largest incorporated city in the U.S. state of Louisiana, located on Lake Charles, Prien Lake, and the Calcasieu River. Located in Calcasieu Parish, a major cultural, industrial, and educational center in the southwest region of the state, and one of the most important in...
Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
, who served in the House from 1988-2004. Removal of the Stelly income tax tables began in calendar year 2009.
In the November 5, 2002, general election
General election
In a parliamentary political system, a general election is an election in which all or most members of a given political body are chosen. The term is usually used to refer to elections held for a nation's primary legislative body, as distinguished from by-elections and local elections.The term...
, Louisiana voters approved the Stelly Plan, listed on the ballot as Act 88-2002, actually a constitutional amendment. The tabulation was 534,989 (51 percent) to 506,938 (49 percent).
Details of Stelly Plan
Under the Stelly Plan, the state sales tax on food for home consumption and the sales tax on natural gasNatural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
, electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
, and water for residential use was lowered on January 1, 2003, from 3.9 cents to 2 cents per dollar. Taxes on those items were then eliminated on July 1, 2003. To replace revenue lost through Stelly, individual income tax brackets were adjusted upward. Because individual tax returns for taxable year 2003 were not filed until after January 1, 2004, the withholding tax tables were revised, and the new rates went into effect on January 1, 2003.
Stelly did not affect local sales taxes on food. Only food requiring preparation at home was covered by the reduction in state sales tax. Single-use portions or restaurant meals were not affected by the Stelly Plan. Prescription drugs were already exempt from sales taxes, but Stelly placed that exemption in the state Constitution. Louisiana does not exempt over-the-counter drugs from sales tax, but such items are exempt in neighboring Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
. Stelly also allowed the tax owed by the individual to be distributed over the year 2003. The increase in taxpayer withholding was to have been the same as the savings realized from the elimination of sales taxes under the Stelly Plan. Taxpayers making approximately $80,000 annually saw increases in total state taxes.
Repeal
After years of criticism from those who faced higher taxes as a result of the Stelly Plan, the Louisiana State LegislatureLouisiana State Legislature
The Louisiana State Legislature is the state legislature of the U.S. state of Louisiana. It is bicameral body, comprising the lower house, the Louisiana House of Representatives with 105 representatives, and the upper house, the Louisiana Senate with 39 senators...
in 2008 repealed Stelly. The highest income brackets were returned to the level they were prior to 2003. The tax reduction began in 2009, but the state revenue department did not alter the withholding on individual income tax tables until July 1 of that year. Hence individuals did not receive more disposable income in their paychecks until after July 1 unless they had individually requested that their employers adjust their tax schedules prior to July. The repeal of Stelly could cost the state treasury some $358 million in taxes for the 2009-2010 fiscal year and somewhat less for each year thereafter.
Stelly defenders
The Lafayette Daily AdvertiserLafayette Daily Advertiser
The Daily Advertiser is a Gannett daily newspaper based in Lafayette, the fourth largest city in Louisiana. The Daily Advertiser covers international, national, state, and local news in the six parishes of Lafayette, Acadia, Iberia, St. Landry, St. Martin, and Vermilion. The publication circulates...
in Lafayette
Lafayette, Louisiana
Lafayette is a city in and the parish seat of Lafayette Parish, Louisiana, United States, on the Vermilion River. The population was 120,623 at the 2010 census...
, which supported the Stelly Plan, described the measure as a "sensible fiscal measure . . . developed essentially to make income taxes, instead of sales taxes, the primary funding mechanism for government."
The Public Affairs Research Council, a business think-tank, said that the loss of income tax revenues would make Louisiana more reliant on less stable petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
and natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
revenues and creates the potential for a resumption of the "boom-and-bust cycle".
The Baton Rouge Morning Advocate editorially opposed the Stelly Plan repeal, which it determined reflects legislators yielding to pressure from higher-income taxpayers. The newspaper questioned the repeal of a progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...
income-tax-for sales-tax swap and came up with this possible explanation:
"Part of it is human nature: People benefit a little bit every day from the sales taxes eliminated in 2002 by passage of the Stelly Plan. But everybody notices when they write a larger check for state income tax. Lawmakers are responding to aggrieved, mostly affluent constituents who pay big income tax bills.
"This is a commonly cited problem with the sales tax: even the low-income folks who are hit hardest by it often don't notice, because they pay a nickel here and a nickel there rather than one big lump sum. If people don't notice the sales tax when they pay it, it's easy to understand that they wouldn't notice when (as a result of the Stelly sales tax cuts) they're not longer paying it. . . . "
Stelly critics
Governor Bobby JindalBobby Jindal
Piyush "Bobby" Jindal is the 55th and current Governor of Louisiana and formerly a member of the United States House of Representatives. He is a member of the Republican Party....
at first opposed the repeal as too costly to declining state coffers but then championed it as public reaction against the measure accelerated.
Jeffrey D. Sadow
Jeffrey D. Sadow
Jeffrey Dennis Sadow is an associate professor of political science at Louisiana State University in Shreveport known for his Internet writings on behalf of political conservatism and the Republican Party in Louisiana....
, a professor
Professor
A professor is a scholarly teacher; the precise meaning of the term varies by country. Literally, professor derives from Latin as a "person who professes" being usually an expert in arts or sciences; a teacher of high rank...
of political science
Political science
Political Science is a social science discipline concerned with the study of the state, government and politics. Aristotle defined it as the study of the state. It deals extensively with the theory and practice of politics, and the analysis of political systems and political behavior...
at Louisiana State University in Shreveport
Louisiana State University in Shreveport
Louisiana State University in Shreveport is a branch of the Louisiana State University System in Shreveport, Louisiana. Opened in 1967, LSUS is the only public four-year university in the Shreveport-Bossier metro area....
and active conservative blogger, in 2005 described the Stelly Plan, accordingly: "In essence . . . just another link in the long history of Louisiana tax policy that favors redistribution and discourages economic development. It's that kind of thinking that has gotten us into an economic mess . . . "
Several lawmakers have also opposed the Stelly Plan's removal of certain state income tax deductions. Former legislators Pete Schneider
Pete Schneider (Louisiana politician)
Matthew Peter Schneider, III, known as Pete Schneider , is a Slidell, Louisiana, businessman who served four terms between 1992 and 2008 as a Republican member of the Louisiana House of Representatives from District 90, which encompasses his St. Tammany Parish...
of Slidell
Slidell, Louisiana
Slidell is a city situated on the northeast shore of Lake Pontchartrain in St. Tammany Parish, Louisiana, United States. The population was 25,695 at the 2000 census. The Greater Slidell Community has a population of about 90,000...
, James David Cain
James David Cain
James David Cain, Sr. is a retired farmer and rancher from the Dry Creek community in eastern Beauregard Parish, who is a former Republican member of the Louisiana State Senate....
of Beauregarde Parish
Beauregard Parish, Louisiana
Beauregard Parish [p] is a parish located in the U.S. state of Louisiana. Beauregard Parish was formed on 1 January 1913. The parish seat is DeRidder. As of 2000, the population was 32,986. Beauregard Parish is part of the DeRidder Micropolitan Statistical Area as well as the Fort Polk...
, and Peppi Bruneau
Peppi Bruneau
Charles Emile Bruneau, Jr., known as Peppi Bruneau , is an attorney from New Orleans, Louisiana, who represented District 94 in the Louisiana House of Representatives from 1976 until his retirement in April 2007....
of New Orleans
New Orleans, Louisiana
New Orleans is a major United States port and the largest city and metropolitan area in the state of Louisiana. The New Orleans metropolitan area has a population of 1,235,650 as of 2009, the 46th largest in the USA. The New Orleans – Metairie – Bogalusa combined statistical area has a population...
attempted unsuccessfully to restore deductions removed for charitable contributions and home mortgage interest.