Average Louisianans Would Pay for Gov. Landry’s Tax Break for the Rich
November 26, 2024
Neva Butkus
State Policy Analyst
November 26, 2024
This op-ed originally appeared in the Louisiana Illuminator.
Louisiana lawmakers should be properly funding education, childcare, healthcare, and other priorities that strengthen Louisiana’s economy and make a meaningful difference in the lives of the millions of Louisianans. Instead, too many are intent on quietly pushing through a special session tax package that would have low- and middle-income families subsidize tax cuts for the wealthy and corporations.
Louisiana’s tax system already asks low- and middle-income households to contribute more of their income to state and local taxes than wealthy households. Currently, the lowest earning 20 percent of Louisiana households pay twice as much of their income in taxes – 13.1 percent – as the wealthiest 1 percent, who pay just 6.5 percent of their income.
Gov. Landry’s tax plan would replace millions in income tax revenue, a tax that is based on one’s ability to pay, with new sales tax revenue that would disproportionately hit the pocketbooks of low- and middle-income families. This would be done by turning Louisiana’s tiered personal and corporate income tax rates into a flat tax – meaning teachers and firefighters would pay the same tax rate as our state’s millionaires.
The plan also eliminates the corporate franchise tax, often the only option for large multinational corporations to meaningfully contribute to funding things like schools, transportation, and healthcare because Louisiana has not enacted worldwide or domestic combined reporting which ensure that corporations pay income tax on the full amount of profit made in that state.
To pay for these tax cuts, lawmakers plan on increasing the state sales tax to 5 percent – a .55 cent increase from where it is today. This is a 1 cent increase from the anticipated 4 percent rate set to go into effect July 2025. Lawmakers also chose to expand the sales tax base in addition to the rate by taxing digital products like Netflix.
This tax swap would result in the lowest-income 20 percent of Louisianans (with incomes under $22,100 a year) receiving a small tax increase due to the state’s additional reliance on deeply regressive sales taxes. Middle-income households making $55,900 on average would receive an average cut of $87. Meanwhile, the wealthiest 1 percent of Louisiana households with average annual incomes of $1.8 million would receive an average tax cut of nearly $15,400– more than a full-time minimum wage worker would make in a year in Louisiana.
Gov. Landry’s original tax package was expected to cost the state upwards of $2 billion over the next five years, jeopardizing future funding for higher education and healthcare. Large corporations would receive hundreds of millions of dollars in tax cuts due to the proposed corporate income tax cut and elimination of the corporate franchise tax, which would overwhelmingly benefit out-of-state shareholders with little to no benefit trickling down to the average Louisianan.
As key revenue raising portions of the governor’s original tax plan such as expanding sales tax to services and eliminating programs like the film credit were removed under pressure from lobbyists and interest groups, lawmakers chose to increase the state sales tax and shift the cost to everyday Louisianans instead. The reworked package passed the Senate with only a single Senator objecting, despite having incomplete information on the package’s fiscal impact. Lawmakers also chose to temporarily allocate revenue from vehicle sales taxes to the general fund from the transportation trust fund which funds infrastructure projects in an attempt to buffer out the revenue loss from income tax cuts.
Lawmakers in support of the tax overhaul have pointed to states like North Carolina as inspiration, but what they’re failing to recognize is that North Carolina’s economy was growing at a faster pace before the state enacted major tax cuts. And years of deep tax cuts in North Carolina have resulted in massive amounts of revenue loss and underinvestment that have lawmakers and North Carolinians sounding the alarm over the growing list of unmet needs – particularly around child care shortages, early childhood education, and K-12 funding. For instance, North Carolina ranks near the bottom of the list for per pupil funding and K-12 funding proportional to state wealth. Hardly a model worth replicating.
Tax cuts for the wealthy and corporations will not make Louisiana more competitive. Rather, they will blow a hole in our state budget while asking low- and middle-income working families to make up the difference. Gov. Landry and the Louisiana legislature would make much better use of their time looking for ways to make Louisiana’s tax structure fairer and more capable of adequately funding important priorities.