Louisiana Governor Jeff Landry signed into law a series of tax reforms on Dec. 5, reducing income tax rates for businesses and individuals while increasing the state sales tax rate.
At the center of Landry’s tax reforms is a measure the governor says will provide $1.3 billion in income tax cuts for Louisiana residents as well as nearly triple the standard individual deduction and double deductions for older adults.
That measure replaces the state’s current graduated system, which imposed a top rate of 4.25 percent for people earning $50,000 or more, with a flat rate of 3 percent.
Large corporations will also see their income tax rate reduced from 7.5 percent to 5.5 percent under the reforms, while the 0.275 percent corporate franchise tax will be eliminated.
Landry said the changes would make the state more competitive for businesses.
To offset part of the revenue lost from the tax cuts, the governor approved increasing the state sales tax to 5 percent for the next five years, after which it will drop to 4.75 percent. Previously, the state sales tax stood at 4 percent with a temporary 0.45 percent increase set to expire next year.
The new tax reform measures take effect on Jan. 1.
“Louisiana’s people and businesses have suffered at the hands of a bloated and broken tax system,” Landry said.
The governor thanked the bipartisan group of lawmakers who he said “instituted generational change” when passing the measures.
The newly signed measures were welcomed by Republicans and Democrats in Louisiana’s House of Representatives.
State Rep. Julie Emerson, a Republican who sponsored several of the major bills signed by Landry, said, “Our complicated business tax policy has finally been moved toward greater fairness and positioned us to be more competitive with our surrounding states.”
Sen. Minority Leader Gerald Boudreaux said the Democratic Caucus had supported the bills in order to have a seat at the table in shaping the process.
“All of those changes represent what’s best for the state, and they’re now in a document that was not previously there,” Boudreaux said on the Senate floor in November.
Some analysts, however, have raised concerns over the measures, saying the tax cuts will predominantly benefit the state’s wealthiest residents and corporate shareholders. They argue that increasing sales tax disproportionately affects lower-income households as opposed to high-income earners.
“I think it will ensure that low- and moderate-income families continue to pay a higher effective tax rate in Louisiana than those at the very top,” Moller said.
Landry also approved an array of proposed constitutional changes on Dec. 5, aimed at streamlining a complicated section of the state’s constitution, Article 7.
An amendment, which will go before voters in March next year, removes large amounts of tax exemptions from constitutional protection.
It also enables a permanent $2,000 raise for teachers, made possible by liquidating several education trust funds to pay off early nearly $2 billion in school district debt.
Under another proposed change, a growth cap would be implemented to limit the amount of additional funding the state can earmark for recurring expenses each year.
