Income tax

Elimination of income tax sparks more debate in Louisiana

Texas, Florida and Tennessee — states with no personal income taxes and strong economies — are attracting the attention of Louisiana lawmakers who are considering whether they should follow suit.

At a meeting of the House Ways and Means Committee in September, lawmakers began studying Louisiana taxes as part of a House resolution passed earlier this year. He instructs the committee to make recommendations to the Legislative Assembly on Louisiana’s tax structure, including state income tax.

State Representative Richard Nelson, R-Mandeville, argued that rebuilding the tax structure and eliminating its income tax is necessary to make Louisiana more competitive and attract investment.

“When you look at the state, and you look at the trajectory that we’re going, I think the tax structure in Louisiana is one of the fundamental things that’s holding us back,” Nelson said.

Over the past decade, similar proposals have gained little to no traction, including a series of bills proposed by Nelson in 2021 that would have eliminated corporate and personal income taxes and increased the share of l State sales tax from 4.45 to 6% while capping local sales tax rate at 3%.

Nelson’s latest plan calls for a similar increase in sales taxes, but critics say it would shift more of the overall tax burden from wealthier residents to lower-income residents.

“Louisiana’s income tax is very low by national standards, but the revenue it generates provides critical support for our schools, hospitals, and other vital services,” the Louisiana Budget Project wrote in its newsletter. last month. “Eliminating this tax would inevitably shift the responsibility for paying taxes from wealthy individuals and corporations to low-income Louisianans and small businesses and would make it much more difficult to balance the state budget each year.”

Daniel Erspamer, director of the Pelican Institute for Public Policy, said the complexity of Louisiana’s tax structure and constitution presents a hurdle other states haven’t had to overcome.

“We have 432 pages of tax preferences in the corporate tax code alone,” Erspamer said. We have one of the longest and most complex state constitutions in the country, and a lot of it is related to taxation,” he said.

“It’s always a challenge to do transformational things in an election year,” Erspamer added. “How quickly things move this year, I think, just depends on how brave lawmakers are willing to show in an election year.”

State income tax accounts for $4.3 billion, or 11%, of the state’s $39 billion operating budget, which includes a significant contribution from the federal government. Of all Louisiana income, income tax accounts for about 22%.

Nelson and other supporters believe it is possible to replace that money with a much broader property and sales tax and limited exemptions for individuals and corporations. It’s probably in the face of pushback.

“The devil on these things is always in the details,” said state Rep. Tanner Magee, R-Houma, who sits on the House Ways and Means Committee. “I think most legislators, maybe not all, would love to get rid of state income tax, but you have to figure out how you’re going to replace that income.”

Debbie Vivien, chief economist for the Legislative Tax Office, acknowledged the temptation to cut taxes during the current period of high inflation and state budget surpluses. However, she cautioned lawmakers against making any big changes.

“If you’re tempted to cut, keep in mind that we have a long way to go at this point,” Vivien said.

Eight states – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – have no personal income tax.

Magee notes that Louisiana’s tax structure is not so comparable to other states.

Unlike Louisiana, Texas does not have a property tax exemption. It has higher sales and property taxes and provides local health care, which Louisiana does not. And any attempt to reduce the property exemption could also spark opposition in Louisiana.

Magee is a supporter of eliminating the income tax, but he’s not optimistic that a bill will pass in the 2023 session. Proponents will likely expand the sales tax to include more articles, which should also meet resistance.

“They’re expanding the sales tax base, which is probably a good idea,” Magee said. “But you are taxing people on the sales tax side who have never been taxed before.”

Magee suggests lowering income tax over time to avoid this opposition and confusion.

“I think we can do a lot to lower our income tax and be competitive and move in that direction,” he said. “And I think I would personally prefer that we did that. Even if it’s gradual, we’ll see better fiscal policy than taking big swings and big misses.

Rising federal aid revenues after Hurricane Katrina led the legislature and governor to make tax cuts, which resulted in lower revenues. When those federal dollars were spent, the state was left with a large deficit.

The federal aid Louisiana received from the COVID-19 pandemic and a temporary sales tax increase enacted in 2018 puts the state in a similar position today.

But the state representative. Gerald “Beau” Beaullieu, deputy chairman of the House Ways and Means committee, said: “We’re not trying to cut taxes just to say, ‘Hey, we’re cutting taxes’.”

“The end of all means is that we want to create more jobs for Louisiana,” said Beaullieu, R-New Iberia.

Molly Ryan is a writer with LSU Manship School News Service.