Governor’s Tax Package Seeks To Make Louisiana More Competitive

The first half of the 2020s has been marked by two dominant policy and political trends in state capitals: the expansion of school choice, coupled with the lowering and flattening of personal income tax rates. While these trends are poised to persist in the coming year, most lawmakers and governors will have to wait until 2025 to advance the next round of reforms. In Louisiana, however, lawmakers aren’t going to wait until the new year to overhaul their tax code in a way that will reduce income tax rates for individuals and employers.

On the first day of October, Governor Jeff Landry (R-La.) announced that he’s convening a special session of the Louisiana Legislature next month for the purpose of reforming the state tax code in a way that will lower income tax rates and broaden the sales tax base. Governor Landry is asking state legislators to approve ten bills comprising his tax reform package when they return to Baton Rouge for the November special session.

The current tax system in Louisiana assesses a 1.85% tax on the first $12,500 in earnings, while income between $12,500 and $50,000 is taxed at a 3.5% rate. Income above $50,000 is then taxed at a 4.25% rate. If Gov. Landry’s proposal is enacted, Louisiana would tax all income beyond $12,500 at a 3% rate. With the standard deduction raised to $12,500 under Landry’s proposal, income below that level would be free from taxation moving forward.

“This plan will provide an immediate increase in take-home pay for every Louisiana taxpayer,” Gov. Landry said of his proposal during the Oct. 1 press conference. Landry described his tax package as “moving from taxing your labor to your choices.”

Beyond the initial restructuring of state income tax brackets and rates, Governor Landry says his plan could put Louisiana on the path to completely phase out its personal income tax by 2030. “I hate income tax,” Landry said at the October 1 press conference, adding that “a man and woman’s labor should never be owned by the government.”

The goal of income tax elimination is appealing to many Louisianans who see the neighboring state of Texas, along with nearby Florida and Tennessee, thriving without any state income tax. In fact, those states have been experiencing some of the nation’s largest population gains in recent years.

Landry is not the only governor in the region working toward a phaseout of his state’s income tax. Arkansas Governor Sarah Sanders (R) and Mississippi Governor Tate Reeves (R) have not only declared their intention to repeal their state income tax, they’ve signed numerous rate-reducing bills making progress toward that goal.

Landry’s tax package would also repeal the corporate franchise tax and move the corporate income tax from a progressive structure with a top rate of 7.5% to a flat rate of 3.5%. Fewer than 20 states levy a corporate franchise tax and many of them have been working to phase those down in recent years.

“Governor Landry’s sweeping tax reform proposal will dramatically improve the state’s economic climate by providing a tax cut for every taxpayer, simplifying business taxes, broadening the tax base, and ending the punishing franchise tax,” says Daniel Erspamer, chief executive officer of the Pelican Institute for Public Policy, a Lousiana-based think tank. “When paired with meaningful restraint of recurring government spending, this plan will act as rocket fuel to the state’s economy and signal to the tens of thousands of our kids and grandkids who’ve left to find opportunity elsewhere – not to mention entrepreneurs and job creators – that Louisiana wants them back.”

Critics of Landry’s tax proposal have attacked it as one that benefits “the rich.” Landry administration officials have responded by pointing out how, under their proposal, upper income taxpayers would actually end up paying a greater share of income tax collections than is now the case.

In remarks to the Louisiana House Ways & Means Committee earlier this month, state Department of Revenue Secretary Richard Nelson testified that under Gov. Landry’s tax package, the richest 10% of Louisiana taxpayers would pay 61% of total income tax collections. Under the current tax system, the top 10% of filers pay approximately 55% of all income taxes.

In addition to legislative approval, Governor Landry’s plan also entails voter approval of a constitutional amendment to repeal local inventory taxes, consolidate funds, and make other changes. The start date for the November session has yet to be announced, but is expected to take place some time after Election Day. Should Landry’s tax package be adopted, Louisiana would head into 2025 with a tax code that is more regionally, nationally, and globally competitive than is currently the case.