Wednesday, May 22, 2024

Ivey proposes flat tax he says will benefit the poor

by BIZ Magazine

By Wes Muller, Louisiana Illuminator

A Louisiana lawmaker is proposing a flat tax that he says would actually benefit poor people while maintaining conservative principles. 

House Bill 303, sponsored by Rep. Barry Ivey, R-Central, would introduce a 4.25% flat income tax rate for filers of all income levels. 

The flat tax would replace Louisiana’s current bracket system, which applies different tax rates to three different income groups: 1.85% on the first $12,500 of annual net income; 3.5% on the next $37,500; and 4.25% on income in excess of $50,000. 

Flat tax rates are usually considered regressive, meaning they tend to hurt those who earn the least. However, Ivey’s proposal contains a novel feature that benefits low income earners by increasing the standard deduction to $12,500. 

Currently, Louisiana has a $4,500 standard deduction for single filers. This means a person who makes $20,000 has to pay taxes on the first $15,500 of their income for a tax bill of roughly $336.

Ivey’s proposal would hike the standard deduction to $12,500. So the same person who makes $20,000 per year would pay only about $319 in taxes. 

At the same time, higher income earners would get the same standard deduction and the same 4.25% tax rate as everyone else. 

“We can treat everyone the same, which is what conservatives want,” Ivey said.

Parents and head-of-household filers would also enjoy greater benefits as Ivey’s proposal raises the state’s current $400 dependent credit to $1,000.

Ivey filed a nearly identical bill during the 2021 legislative session, but it received little attention among the larger “tax swap” proposals lawmakers were pushing at the time. The package cut income tax rates, largely benefiting the rich. 

It’s unclear how current tax brackets have impacted Louisiana residents as they have only been in effect for a little over a year.

Ivey’s bill will still have to compete with a large number of other tax proposals that lawmakers have pre-filed ahead of the 2023 session, which begins April 10. Some proposals would eliminate income taxes altogether.

“It is important to create good tax policy that treats everybody fairly,” Ivey said.

You may also like

Update Required Flash plugin