Income tax

Lawmakers will discuss sweeping tax reforms, including the elimination of income tax in preparation for next year’s legislative session

NEW ORLEANS (WVUE) — The House Ways and Means Committee will hold its first of several meetings Sept. 13 to discuss sweeping reforms to Louisiana’s tax system, which include eliminating the income tax on individuals.

The meetings will be a way to explore how it would work, as well as discussions with local government officials, business leaders and stakeholders, according to Rep. Richard Nelson (R) of Mandeville.

In the past, Nelson has been a leading proponent of income tax elimination. In 2021, he sponsored a package of bills to phase out personal and corporate income taxes and replace them with locally administered property taxes.

Nelson believes that by eliminating state income tax, the state will be more competitive in attracting residents and large businesses. By keeping income tax, he said it kept people and businesses away from the state.

“When you look at the trajectory where Louisiana has been and where we want to be, we’re kind of — the last 100 years — we’ve fallen behind the rest of the country in terms of growth,” Rep. Nelson said. “I think especially over the past two decades, we’re continually seeing more business, more people moving to states like Texas and Florida, some of our more successful neighbors.”

He said that by removing state income tax, it would simplify the state’s already complicated tax structure and shift funding to local governments.

“We kind of have the worst of all worlds, which is really why we saw how Louisiana went. We have all these advantages. All the natural resources, the culture, everything that everyone likes, but this tax system is really a big engine to drive people away,” he said.

But will it work? Economists say it could lead to higher taxes elsewhere.

“There’s a lot to do to totally rewrite the tax structure,” said Gary Hoover, an economics professor at Tulane University.

He said states do this all the time – eliminating income tax.

“Either we’re going to get less service again, or we’re going to end up seeing property taxes and sales taxes go up. We could also try to hide taxes by calling them fees, but either way, we’re going to see taxes go up somewhere,” Hoover said.

The concern there, he said, is how it might affect low-income households in the state; those who spend most of their income on things that are taxed. This is one of the things that makes this discussion of tax reform so complicated.

“The higher your income, the higher you go in the income distribution, the more your consumption shifts from consumption of products to consumption of services. Services are not taxed,” Hoover said. “So as you go up the income distribution, services are not taxed, but goods are. Your tax liability is actually lower. This does not happen for people at the lower end of the distribution. They will spend most of their income on the very things that are taxed. So raising a sales tax would be absolutely regressive and fall much more heavily on people who spend a lot more of their income buying taxed goods.

“It’s going to be a big step. I think that’s one of the ways – the most effective way to move us forward. We need to do something big to change the direction in which we are heading,” Rep. Nelson said.

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