Louisiana lawmakers adjourned their special session on Friday and sent the governor measures to reduce the corporate income tax, flatten personal income taxes and bump up the state sales tax, but some critics are not sold on the plan.
Legislative leaders said the changes were designed to improve the business climate and spur economic growth. During the session called by Gov. Jeff Landry, public school teachers were also given $2,000 annual raises, and legislators agreed that a constitutional amendment should go before voters to give the Legislature greater leeway to reduce taxes in the future.
“As we continue to work together to stop the outward migration people from Louisiana, it was imperative that we address the $700 million (shortfall next year), cut taxes by over $500 million, lower income taxes for everyone and give teachers a permanent raise,” Speaker of the House Phillip DeVillier said in a prepared statement.
In the package of bills sent to Landry, House Bill 2 cuts the corporate income tax from 7.5% to 5.5%; HB 3 ends the corporate franchise tax; and HB 10 reduces personal income taxes to a flat 3% rate but increases the sales tax from 4.45% to 5% for five years.
Under the state’s current progressive income tax, the rates range from 1.85% for the first $25,000 of income to 4.75% for income over $100,000.
A statement provided by the policy institute Invest in Louisiana characterized the changes as tax cuts for the rich and increasing prices for average Louisianans.
“Unfortunately, the tax changes that head to the governor’s desk will likely produce fiscal instability and future budget shortfalls, and saddle low-income Louisianans with higher costs for everyday purchases,” the statement says.
The tax cuts for corporations and individuals coupled with higher sales taxes create a more regressive tax structure, meaning that those with low or moderate incomes will pay higher rates of tax than their wealthier counterparts, the think tank said.
“The cuts in corporate income and franchise taxes will primarily benefit out-of-state shareholders, while the increase in sales taxes will fall mainly on everyday Louisiana residents,” the Invest in Louisiana statement says.
The think tank emphasized that people and businesses look at more than tax rates when they make decisions on where to locate.
“They also look for places with great schools, accessible and affordable health care and good public amenities – things that we buy with our tax dollars,” the statement says. “Louisiana is losing population for many reasons, including unaffordable property insurance, low wages and crumbling infrastructure.”
The president and CEO of the Louisiana Association of Business and Industry (LABI), Will Green, said lawmakers made major strides in improving the state’s business climate during the special session, pointing to not just tax changes but broadening the reach of the sales tax to cover digital books and music.
“Unfortunately, some critical reforms, including a full repeal of the business inventory tax and streamlining the state’s sales tax collection system – both well-known barriers to investment and business growth – were not approved as part of the plan,” Green said in a prepared statement.
In the package of reforms, Rep. Mark Wright (R-Covington), who authored HB 10, said the standard deduction for all Louisianans would increase, especially helping those who earn lower wages.
The Pelican Institute for Public Policy called the package a bold vision for tax reform ever and one that would constrain spending growth in the future.