Louisiana Senate sends tax overhaul bills back to House

By David Jacobs | The Center Square

The Louisiana Senate approved two bills Wednesday that would eliminate major tax breaks while lowering income tax rates.

The bills are part of a package legislative leaders are pushing to overhaul the state’s tax system.

Personal income is taxed in Louisiana at 2% for the first $12,500, 4% on the next $37,500 and 6% on net income in excess of $50,000. House Bill 278 calls for reducing the rate for each bracket to 1.85%, 3.5% and 4.25%, respectively.

In exchange, taxpayers would give up the ability to deduct the cost of paying their federal income taxes from their state income. Individuals also would lose excess itemized deductions except for medical expenses. The rates could be driven lower if the state collects enough money.

House Bill 292 makes similar changes to corporate income taxes, calling for repealing business’ ability to deduct their federal income taxes. The state’s five corporate income tax brackets would be collapsed into four, charging 1.85% on the first $25,000 of net income, 3.5% on income between $25,000 and $100,000, 6.5% on income between $100,000 and $250,000 and 8% on net income in excess of $250,000.

Sen. Bret Allain, the Republican who chairs the Senate’s tax policy committee, presented the bills in his chamber Wednesday. He said the changes are “revenue neutral,” meaning that for most taxpayers taxes will not be raised or lowered and the state will collect about the same amount of money.

Voters would have to approve the changes by amending the state constitution.

The bills are part of a broader effort to simplify the state’s tax system. While the overall tax burden in Louisiana isn’t high relative to other states thanks to myriad tax breaks, the high nominal rates discourage businesses and residents from moving to the state, lawmakers said.

Legislators and policy professionals across the political spectrum have said the unusual tax break for federal income taxes is bad policy. It ties the state’s tax collections to the federal government’s, so that when federal rates go down the state gets a windfall, but when federal rates go up, state finances take a hit.

Both bills return to the House for review of Senate changes.