By james art Before a an overhanging fiscal cliffGov. Jeff Landry’s “Louisiana Forward” tax reform plan would significantly lower taxes for nearly all Louisiana households, according to independent 22-page report released Monday.
“Almost everybody is going to get cuts,” said Stephen Procopio, president of the Public Affairs Research Council for Louisiana (PAR). “And the majority of people are going to see pretty big cuts.”
Economist Greg Albrecht did the analysis. He was chief economist of the Legislative Fiscal Office from 1985 to 2022 and has been employed by PAR and two other Baton Rouge-based nonprofits, the Council for a Better Louisiana and the Committee of 100.
Louisiana’s current income tax system applies rates of 1.85%, 3.50%, and 4.25% to annual incomes below $12,500, between $12,500 and $50,000, and above $50,000, respectively.Developed in close cooperation with the Secretary of Revenue Department Richard Nelson, Governor Landry’s proposed plan would apply a flat rate of 3 percent to individuals earning over $12,500 and households with combined income over $25,000. It would also increase the standard deduction to $12,500, effectively eliminate income taxes for those earning below that threshold.
Other changes to income tax parameters include eliminating $1,000 deductions for dependents, filers age 65 and older and blind residents, although the plan would double the retirement deduction from $6,000 to $12,000.
To partially offset the overall reduction in income taxes, Landry intends to significantly expand the current 4.45 percent sales tax to include a wide range of categories, such as digital commerce, various home and personal care services, lobbying activities and sales of used cars.
.45% of the current sales tax, called the “half cent” tax, is already a moot point. It was created under the Edwards administration to help with strained government balance sheets. It is set to expire next year along with a 2 percent utility tax, and many conservative lawmakers oppose its renewal.
Election Day is just 21 days away and the East Baton Rouge mayoral race is shaping up to be more competitive. Fundraising has already surpassed previous races, with Democratic challenger Ted James raising more than $1 million. Behind James is incumbent Sharon Weston-Broom, who has $611,835 in campaign contributions, also ahead of previous cycles.
Overall, the report notes that under the new plan, most lower-income households would see a slightly larger percentage drop in their income tax bills than higher-income households. Everyone would pay more in sales tax, but high earners would see a bigger increase.
That means the “progressivity” of a state’s tax system — or the share of taxes paid by wealthier residents — will increase modestly under the new system, albeit by a very small amount.
“I’d say it’s roughly the same,” Procopio said. “But what it’s not is a huge increase in regressivity, which I think a lot of people have been worried about.”
The only exception is for those making less than $10,000 a year; they would pay more as a result of the increased sales tax, although it is worth noting that these income groups also include businesses reporting large revenue losses.
Louisiana has the 10th most regressive tax structure in America, meaning low- and moderate-income residents pay a greater share of their total income in state and local taxes than the wealthiest.
Jan Moller, executive director of the left-leaning Louisiana think tank Invest, says a relatively unchanged distribution system combined with lower taxes will hurt the poorer population.
“If everybody gets a tax cut, how are we going to fund state government?” he said. “It’s something that disproportionately affects low- and moderate-income families because they tend to rely more on public services.”
According to Albrecht’s analysis, the combined effect of the income tax and sales tax changes would reduce the state budget by nearly $400 million, although the report focused solely on the impact on individual taxpayers. Landry’s reform package also includes an overhaul of the state’s corporate tax structure, which proposes to cut corporate tax rates from 7.5 percent to 3.5 percent and eliminate the corporate franchise tax. The aim is to return some of this fiscal revenue by eliminating corporate tax credits.
Upcoming budget deficit of over 737 million dollars expected in fiscal year 2026, with cuts likely in higher education and health care if the state doesn’t find enough revenue to cover costs.
“This is caused by years of misguided fiscal policy and reliance on temporary federal bailout funds,” Landry wrote in Times-Picayune/Advocate on Tuesday.
“This tax plan as we know it today does not solve the fiscal gap and in many ways would make it worse,” Moeller said.
Landry says he will call a special legislative session on his tax bill next month, after the Nov. 5 election. If passed by the Legislature, the changes must be approved by voters in March.