Gov. Landry’s plan would cut taxes for nearly all Louisianans: report

In front of a looming fiscal cliffGov. Jeff Landry’s “Louisiana Forward” tax reform plan would significantly lower taxes for nearly every Louisiana household, according to a 22-page independent report released Monday.

“Virtually everyone is going to have a cut,” said Steven Procopio, president of the Louisiana Public Affairs Research Council (PAR). “And the vast majority of people will see pretty big cuts.”

The analysis was by economist Greg Albrecht. He served as chief economist for the Legislative Fiscal Office from 1985 to 2022 and was 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% for annual incomes under $12,500, between $12,500 and $50,000, and over $50,000. respectively. Developed in close cooperation with Department of the Treasury Secretary Richard Nelson, Governor Landry’s proposed plan would implement a flat rate of 3 percent for individuals earning over $12,500 and households with combined incomes over $25,000. It would also raise the standard deduction to $12,500, effectively eliminating income taxes for those earning below that threshold.

Other changes to income tax parameters include eliminating $1,000 deductions for dependents, filers 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 decline in income taxes, Landry intends to significantly expand the current 4.45% sales tax to include a wide range of categories, including digital commerce, various care services personal and domestic, lobbying activities and used car sales.

The current 45% sales tax, called the “half-cent” tax, is already a point of contention. It was created under the Edwards administration to help with strained state balance sheets. It is set to expire next year along with a 2% tax on utilities, and many conservative lawmakers are against renewing it.

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.

This means that the “progressivity” of the state’s tax system, or the share of taxes paid by the wealthiest residents, would increase modestly under the new system, albeit by a very small amount.

“I would say it’s basically the same,” Procopio said. “But what it’s not is a massive increase in regressiveness, which I think a lot of people had concerns about.”

The only exception is for those who earn less than $10,000 a year; would pay more as a result of the sales tax increase, although it’s worth noting that these income groups also include businesses reporting high revenue losses.

Louisiana has the 10th most regressive tax structure in America, meaning low- and moderate-income residents pay a higher share of their overall income in state and local taxes than the wealthiest.

Jan Moller, executive director of the left-leaning think tank Invest in Louisiana, says the relatively unchanged distribution system combined with lower taxes would hurt poorer populations.

“If everyone gets a tax cut, how are we going to fund state government?” he said “This is 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 effects of the income and sales tax changes would result in a reduction of nearly $400 million to the state budget, although the report focused solely on in the impact on individual taxpayers. Landry’s reform package also includes an overhaul of the state’s corporate tax structure, proposing to cut corporate tax rates from 7.5% to 3.5% and abolish the corporate franchise tax. The intention is to recover part of this tax revenue by eliminating corporate tax credits.

One more looming budget deficit 737 million dollars expected in fiscal year 2026, with cuts to higher education and health care likely to occur if the state can’t find enough revenue to cover costs.

“This is caused by years of misguided fiscal policies and reliance on temporary federal relief funds,” Landry wrote in the Times-Picayune/Advocate on tuesday

“This tax plan as we know it today does not solve the fiscal cliff, and in many ways it would make it worse,” Moller said.

Landry says he will call a special legislative session for his tax bill next month, after the Nov. 5 election. If approved in the Legislature, the changes would have to be approved by voters in March.