BATON ROUGE, La. (AP) – Louisiana’s GOP-controlled legislature passed tax cuts on personal and corporate income Friday in exchange for an increase in the state’s sales tax, giving Gov. Jeff Landry much wanted after the start of the tax reform package. increasing resistance from legislators and advocates.
The final round of tax measures wrapped up a special legislative session that began Nov. 6 and the governor and his assistants. He said his goal is to make the government’s tax code more friendly, create jobs and reverse foreign transfers from the government. It was the third piece of legislation called for by Landry, a Republican, since taking office in January.
Critics have warned that the tax reform will benefit corporate owners and wealthy taxpayers while the sales tax will exacerbate Louisiana’s tax system where poor families pay a higher percentage of their income in taxes.
Landry called the tax reform “historic” and said it allowed all Louisianans to keep more money in their pockets and would encourage business investment.
“Today we made a difference in this country,” Landry said. “We stand on the threshold of a new era for Louisiana.”
A flat 3% income tax
Lawmakers approved a 3% personal income tax cut, resulting in a $1.3 billion reduction.
Previously, the personal income tax rate stood at 4.25% for people earning $50,000 or more.
Louisiana Republicans said the measure furthered their goal of repealing the income tax in the future.
“Payroll tax is a job; you have to pay. You get penalized for making more money,” said Republican Rep. Julie Emerson, who sponsored the legislation.
He argued that a consumption tax was a good thing: “A sales tax is optional,” Emerson said.
Lawmakers also noted that some states in the South, such as Arkansas, Mississippi and North Carolina, have recently reduced their income taxes.
“We are on the same path as other countries around us to be competitive,” Sen. Republican Franklin Foil said.
As part of the bill, lawmakers doubled the deduction for seniors and nearly tripled the standard deduction, eliminating the income tax on low-income households.
Lawmakers reinvested $280 million in vehicle tax revenue from a number of infrastructure projects over the next two years to help moderate the income tax burden.
A reduction in corporate taxes
The new corporate income tax rate will be a flat 5.5%, lowering the top rate from 7.5%. Landry wanted a 3.5% flat rate.
Louisiana’s corporate tax rate was the highest in the South according to the Tax Foundation, a think tank.
Lawmakers eliminated the 0.275% corporate income tax, a tax on businesses operating in the state worth more than $500 million in annual revenue that went to the national security account. Republican lawmakers have criticized the tax as an unnecessary penalty on business.
Landry and other Republican lawmakers said the tax cuts are important to remove barriers to attracting job-creating companies to the state and improve Louisiana’s ranking on the Tax Foundation’s business climate.
“Louisiana just became an attractive place to do business,” Louisiana Economic Secretary Susan Bourgeois said.
An increase in sales tax
With the income tax cut reducing annual revenue by $1.3 billion, Landry’s original plan had called for the sales tax to be used for many services such as car washes, dog grooming and grooming. He also sought to eliminate a large tax to encourage the restoration of old buildings and the film industry.
Those proposals were defeated — with the exception of a new sales tax on digital goods and services — following strong opposition from Republicans and interest groups, resulting in more sales tax hikes than Landry had previously proposed.
Lawmakers raised the state sales tax to 5%, equivalent to an increase of one cent on every dollar spent. In 2030, the state sales tax will be reduced to 4.75%.
The state sales tax currently stands at 4%, along with the temporary 0.45% sales tax that was set to expire next year.
Louisiana already had the highest combined state and average local sales tax in the country at 9.56%, according to the Tax Foundation.
Louisiana has the 10th most regressive tax system in the country, according to the left-leaning Institute on Taxation and Economic Policy.
Jan Moller, executive director of the liberal think tank Invest in Louisiana, said the sales tax hike and other changes are taking the country “in the wrong direction.”
“I think it’s going to keep low- and moderate-income families paying higher taxes in Louisiana than those at the top,” he said.
Republican leaders have said they don’t believe the sales tax increase would erase the benefits of the flat tax rate for middle-income families.
Sen. Minority Leader Gerald Boudreaux said the Democratic Caucus supported the bills – only one Democratic Senator opposed – so that he would have a seat at the table in reforming the process, such as the push to protect the film company tax.
“All these changes represent the best interests of the country, and they are in the document – which was not there,” Boudreaux said on the Senate floor.
House Democrats are more fractured than their Senate counterparts, but many still vote in favor of the tax package as a whole.
Constitutional reform
The tax reform bill included a significant rewrite of the nation’s most notorious section of the constitution, Article 7.
The amendment, which will go before voters on March 29, removes a large number of tax exemptions from the protection of the constitution and aims to give lawmakers the freedom to end these exemptions in the future.
The constitutional amendment also allows for a $2,000 increase in teacher pay, which was made possible by eliminating a large trust fund to pay off nearly $2 billion in district debt.
And it puts a “growth cap” on the amount of money lawmakers can target for recurring revenue each year based on an estimate of the state’s economic growth — a measure proposed by conservatives.
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Associated Press writer Kevin McGill contributed this report.
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Brook is a member of the staff of The Associated Press/Report of America’s Statehouse News Initiative. Report for America is a non-profit national service program that places journalists in local newsrooms to report on the non-covered. Follow Brook on social platform X: @jack_brook96
