Competing bills to lower income tax rates, cut tax breaks advance in Louisiana House

By David Jacobs | The Center Square

The Louisiana House’s tax-writing committee advanced without objection Monday competing bills to reduce state income tax rates while cutting tax breaks to make up the difference in state revenue.

The House Ways and Means Committee also shot down an effort to raise taxes on the state’s wealthiest taxpayers by creating two new high-end tax brackets.

House Bill 278 by Rep. Stuart Bishop, the Republican who chairs Ways and Means, proposes keeping the state’s three tax brackets but lowering the rates for each. The state would tax the first $12,500 at 1.85% rather than 2%, the next $37,500 at 3.51% compared with the current 4%, and income in excess of $50,000 at 4.25% rather than 6%.

The bill repeals the state’s deduction for income taxes paid to the federal government and all itemized deductions except for medical expenses. The changes would require amending the state constitution, which requires the approval of at least two-thirds of the members in each chamber and a majority of voters.

“It’s a step in the right direction,” Bishop said.

Lawmakers and policy analysts generally agree the amount of taxes Louisiana residents pay is not particularly high by national standards, but the system is too complicated. Eliminating tax breaks and lowering rates would make the system easier to navigate for taxpayers and make the state more attractive to residents and businesses who may be discouraged by higher rates, supporters said.

The federal income tax deduction also is problematic because it ties state tax policy to federal changes state lawmakers can’t control, legislators and analysts said.

“We need to make ourselves look more attractive,” Republican Sen. Bret Allain, who chairs his chamber’s tax policy committee and is working with Bishop on his bill, said of the income tax rates.

The current top rate of 6% is the highest in the southeast other than South Carolina, where the highest rate is 7%, according to information presented by Robert Travis Scott of the Public Affairs Research Council of Louisiana. While it’s not necessarily a direct comparison – some states have top rates that kick in at a lower income level than Louisiana’s, Scott said – a 5% top rate would bring Louisiana more in line with its neighbors that levy state income taxes.

While some people would pay a little more in state income taxes, most of them make more than $90,000 a year, Allain said. He said lawmakers could consider lowering rates further in future years if tax collections increase.

The Legislative Fiscal Office estimated the changes outlined in HB 278 would cause the state to collect about $18 million more over five years, which supporters said was about as close to being purely revenue-neutral as possible given the billions of dollars at issue.

House Bill 171 by Republican House Appropriations Committee Chair Jerome Zeringue also advanced without objection. While also getting rid of the federal deduction, it proposes a simpler, flatter system than Bishop’s bill, eliminating state income taxes on the first $12,500 of income and imposing a 4% rate on all other income. His change also comes with a proposed constitutional amendment.

Zeringue amended his bill Monday to call for slashing the state’s subsidies for film and television production. His bill would halve the amount of film tax credits that can be issued in a fiscal year from $150 million to $75 million and the amount that can be claimed annually from $180 million to $90 million.

With the film credit amendment, HB 171 would raise an additional $29.4 million over five years, the Fiscal Office estimated. Zeringue said the vast majority of taxpayers would see a tax cut under his proposal.

David Tatman, on behalf of the film sector, said the cuts would be “devastating for our industry.” Zeringue, however, said a broad tax cut for Louisiana residents is more important than a benefit for a specific industry.

The committee voted 8-6 to reject House Bill 529 by Rep. Mandie Landry, D-New Orleans. She proposed raising the income level needed to hit the current 6% top rate from $50,000 to $450,000, then taxing the next $500,000 at 7% and taxing net income over $1 million at 8%.

The changes would bring in an estimated $101.3 million after five years. Landry said she would prefer to spend the new money on early childhood education, though the bill didn’t dedicate the money to any particular area.

Rep. Mark Wright, R-Covington, said he agreed with Landry that higher taxes on the rich likely would be popular with voters, but that doesn’t make it good policy.

“It’s really easy to say don’t tax me, tax the man behind the tree,” he said.