Louisiana Lawmakers Considering Deeply Regressive Tax Plan

Louisiana Gov. Jeff Landry called the legislature back to the capitol the day after the national election to take up his plan to overhaul the state’s tax system during a 20-day special session. Our analysis shows the proposal would worsen the inequity already rampant in Louisiana’s tax system while costing billions that would shortchange essential services for families across the state.

The centerpiece of Gov. Landry’s plan would cut $1.3 billion a year from the state’s personal income taxes by enacting a 3 percent flat rate. His proposal also cuts corporate income taxes, eliminates the corporate franchise tax, and replaces a portion of the lost revenue through additional sales tax on services and previously exempt items and elimination of certain business exemptions. Overall, as currently written, the package would cost the state upwards of $2 billion over the next 5 years.

While the governor’s tax plan is being touted as a new, innovative way to attract jobs and retain talent, these talking points and policies are anything but new – and there’s no evidence they will do much to grow the economy. From 2021 to 2023, 26 states cut their personal and/or corporate income tax rates, and many of these states have little to show for it besides budget crises, struggles to fund public services, and threats of downgraded credit ratings.

Louisiana already holds the dubious honor of having the tenth most regressive tax system in the country – with the lowest earning Louisianans paying 13.1 percent of their income in state and local taxes while the top 1 percent pays just 6.5 percent of their income. This regressivity is due in no small part to Louisiana’s highest-in-the-nation sales tax which consistently exceeds 9.5 percent when accounting for state and local rates. This ranking could get even worse if lawmakers choose to make the state’s 4.45 percent rate permanent and expand the sales tax to dozens of services such as landscaping, home repairs, digital services like Netflix subscriptions, and currently exempt items such as diapers and coin-operated laundry machines.

This additional sales tax revenue will be used to replace Louisiana’s only major sources of progressive tax revenue. Lawmakers would remove the parts of the tax system that ask the wealthy and large corporations to contribute to services that support Louisiana’s economy like public schools, healthcare, and universities.

Gov. Landry’s plan includes eliminating Louisiana’s graduated-rate personal income tax structure and its top rate of 4.25 percent and replacing it with a flat 3 percent personal income tax rate and higher standard deduction. Large corporations – not small businesses – will see the bulk of the business tax breaks as the top corporate income tax rate of 7.5 percent would drop to a flat 3.5 percent.

The proposal would also eliminate the corporate franchise tax which is a tax on business capital and, in the absence of combined reporting, one of the most effective ways to tax large multi-national corporations operating in Louisiana.

Meanwhile, a separate bill under consideration would eliminate the state’s 5 percent match of the federal Earned Income Tax Credit, one of the few state policies that help counteract Louisiana’s high reliance on sales taxes. Sales taxes makeup more than half of the state’s overall state and local tax revenue.

This tax shift will double down on the state’s already regressive tax structure. According to our analysis, the swap – as currently proposed – would result in the lowest-income 20 percent of Louisianans (with average annual incomes of $12,700) receiving an average tax cut of just $10. Middle-income households making $55,900 on average would receive an average $288 tax cut. Meanwhile, the wealthiest 1 percent of Louisiana households with average annual incomes of $1.8 million will receive an average tax cut of nearly $17,000 – more than a full-time minimum wage worker would make in a year in Louisiana. The tax plan also stands to benefit the wealthiest Louisianans when comparing cuts as a percentage of income. The lowest earning Louisianans will see a tax cut of just .08 percent of their income, while the top 1% receives a tax cut of .89 percent – over 11 times more generous.

Louisiana’s tax system is deeply in need of reform as it disproportionately relies on low- and middle-income households for revenue while still inadequately funding the public services that support a strong economy. The policies up for debate take the state in the opposite direction.

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Modeled components above reflect HB 1, HB 2, HB 3, HB 9, and HB 10 as of the morning of November 13, 2024.

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