BATON ROUGE, La. (AP) – Louisiana’s Republican-dominated Legislature passed personal and business income tax cuts on Friday in exchange for a statewide sales tax enhance, giving Gov. Jeff Landry much of what he wanted after his original tax reform package faced mounting opposition from legislators and lobbyists.
Final passage of the tax measures capped a special legislative session initiated Nov. 6 by the governor and his allies. They said their purpose is to make the state’s tax code more business-friendly, create jobs and reverse migration trends out of the state. It was the third special session of the legislative session that Landry, a Republican, had called since he took office in January.
Critics warned that the tax reforms would primarily benefit corporate shareholders and wealthy taxpayers, while the sales tax enhance would exacerbate Louisiana’s regressive tax system, in which poorer households pay a higher percentage of their income in taxes.
Landry called the tax reforms “historic,” saying they would allow all Louisiana residents to keep more money in their pockets and would spur business investment.
“Today we have a generational change in this state,” Landry said. “We now stand on the threshold of a new era for Louisiana.”
A flat income tax of 3%
Lawmakers agreed to a flat 3% income tax rate, resulting in a $1.3 billion cut.
Previously, the income tax rate for individuals earning $50,000 or more was 4.25%.
Louisiana Republicans said the measure would further their goal of permanently eliminating the income tax in the future.
“Income tax is a mandate; You have to pay it. “You get punished for making more money,” said Republican Rep. Julie Emerson, who sponsored the legislation.
She argued consumption-based taxes were fairer: “Sales tax is a choice,” Emerson said.
Lawmakers also noted that other Southern states such as Arkansas, Mississippi and North Carolina have recently cut their income taxes.
“We are on the same path as other states around us to be competitive,” said Republican Senator Franklin Foil.
As part of the legislative package, lawmakers doubled the standard deduction for seniors and nearly tripled the standard deduction for individuals, effectively eliminating the income tax for the lowest-income households.
Lawmakers also redirected $280 million in vehicle sales tax funds from several major infrastructure projects over the next two years to offset the income tax cut.
Tax cuts for companies
The state’s recent corporate tax rate will be a flat 5.5%, cutting the top tax rate to 7.5%. Landry had wanted a flat rate of 3.5%.
According to the Tax Foundation, a conservative think tank, Louisiana’s corporate tax rate was the highest in the South.
Lawmakers eliminated the 0.275% franchise tax, a levy on businesses operating in the state with annual sales of more than $500 million that went into a state savings account. Republican lawmakers had condemned the tax as an arbitrary punishment for businesses.
Landry and other Republican lawmakers had touted those tax cuts as crucial to removing barriers to job-creating companies locating in the state and improving Louisiana’s place in the Tax Foundation’s business climate rankings.
“Louisiana has just become a much more attractive place to do business,” said Louisiana Economic Development Secretary Susan Bourgeois.
Increase in sales tax
Because the income tax cut reduced annual revenue by $1.3 billion, Landry’s original plan called for raising sales taxes on dozens of services such as car washing, dog grooming and lobbying. He also tried to eliminate major tax incentives for historic building restoration and the film industry.
Those proposals — with the exception of a recent sales tax on digital goods and services — were rejected after fierce opposition from Republicans and advocacy groups, resulting in a larger sales tax enhance than Landry originally proposed.
Lawmakers increased the state sales tax to 5%, an enhance of one cent on every dollar spent. In 2030, the state sales tax will be reduced to 4.75%.
The state’s current sales tax was 4%, along with a ephemeral 0.45% sales tax that was set to expire next year.
According to the Tax Foundation, Louisiana already had the highest combined state and average local sales tax in the country at 9.56%.
According to the left-leaning Institute on Taxation and Economic Policy, Louisiana has the 10th most regressive tax system in the country.
Jan Moller, executive director of the liberal think tank Invest in Louisiana, said the sales tax hike and other changes are taking the state “in the wrong direction.”
“I think it will ensure that low- and middle-income families in Louisiana continue to pay a higher effective tax rate than those at the top,” he said.
Republican leaders said they did not believe the increased sales tax would negate the benefits of the income tax cut for low- and middle-income families.
Senate Minority Leader Gerald Boudreaux said the Democratic caucus supported the bills – with only one Democratic senator opposed – to have a seat at the table in shaping the process, such as calling for maintaining the film industry tax credit.
“All of these changes represent what’s best for the state, and they’re now in one document — that didn’t exist before,” Boudreaux said on the Senate floor.
House Democrats were more divided than their Senate counterparts, but many still voted for the entire tax package.
Constitutional amendments
The tax reform package included a significant rewrite of a notoriously complicated section of the state constitution, Article 7.
The amendment, which goes before voters on March 29, removes enormous amounts of tax exemptions from the Constitution and is intended to give lawmakers more leeway to eliminate these exemptions in the future.
The constitutional amendment also allows for a enduring $2,000 raise for teachers, made possible by liquidating several education trust funds to early pay off nearly $2 billion in school district debt.
And it imposes a “growth limit” on the amount of money lawmakers can utilize each year for recurring spending, based on calculations of economic growth in the state — a measure proposed by conservative lawmakers.
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Associated Press writer Kevin McGill contributed to this report.
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Brook is a corps member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues. Follow Brook on social platform X: @jack_brook96
