Tuesday, May 21, 2024

Lawmakers shelve proposal to eliminate Louisiana’s state income tax

by BIZ Magazine

By Wes Muller, Louisiana Illuminator

A proposal to eliminate the state income tax in Louisiana was pulled aside Monday after lawmakers questioned its impact on public education, health care and the poor.   

Legislators on the House Ways and Means Committee spent much of the morning hearing details of House Bill 414, a lengthy 25-page constitutional amendment, but said they wanted more time to read and assess it.  They asked the bill’s sponsor, Rep. Richard Nelson, R-Mandeville, to voluntarily defer the proposal to a later date. Nelson complied with the request, noting his bill covers such a wide range of issues that everyone can find something to hate about it. 

The proposal would, among other things, raise state sales taxes, reduce the homestead property tax exemption, phase out the Industrial Tax Exemption Program, reduce certain funding for hospitals and decrease the state’s share of the Minimum Foundation Program (MFP) formula used to fund K-12 education — all to offset the cost of eliminating the state income tax. 

Nelson, who is running for governor this fall, said his goal is to make Louisiana’s business climate more competitive. Four of the 10 fastest growing states don’t have an income tax, he said, though he could not point to any research to support the notion that taxes affect population rates. 

Five of the top 10 fastest growing states collect income taxes. Washington, D.C., where the population increased 14% according to the 2020 census, has one of the highest income tax rates in the nation. 

Rep. Laurie Schlegel, R-Metairie, supports eliminating the income tax but said about 75% of her constituents oppose the measure because it reduces their homestead exemption from $75,000 to $25,000. The current exemption eliminates the first $75,000 of a home’s value for the purpose of calculating local properties taxes. 

Rep. Les Farnum, R-Sulphur, was also concerned with lowering the homestead exemption and asked how it might affect lower-income residents. Nelson said the poorest 35% of the state are mostly renters but acknowledged their rents would likely increase when property taxes increase.

“We’ve got to be very careful that we don’t throw a burden onto the lower income folks,” Farnum said.

Rep. Buddy Mincey, R-Denham Springs, voiced concerns that K-12 education funding would be cut by about $1 billion if the income tax were eliminated.  Wealthier parishes currently receive more education funding because they have higher property tax values,  Nelson said. 

“Basically, the billion-dollar cut would come from the richer areas, which would no longer be able to get the MFP money but would be able to fund themselves,” Nelson said.

Mincey said there are already provisions in the MFP formula to level out funding between wealthier and poorer communities. 

“It’s questionable on whether or not we’re meeting that minimum [funding] right now, and any reduction of it in any capacity would be extremely concerning for me,” Mincey said. 

Another part of Nelson’s bill would reduce funding for hospitals that treat uninsured patients. Under the new proposal, parishes would decide how much of that financial gap to cover. Rep. Mandie Landry, D-New Orleans, said that could create large funding disparities among hospitals.

“You’re going to have people from all these other parishes going to the bigger hospitals,” Landry said. 

Nelson admitted this part of his proposal needs more analysis and said it was just one of many potential areas to offset the cost of eliminating the income tax. 

Because Nelson voluntarily deferred the proposal, he also had to sideline a package of companion bills. They include House Bill 363 to phase out the corporate franchise tax, House Bill 423 that would hike the state sales tax from 4.45% to 6.25%, House Bill 424 to phase out estate taxes, and House Bill 437 that would establish a flat 5% corporate income tax rate.

In closing his presentation to the committee, Nelson said Texas residents earn 33% more in wages than Louisiana residents.

“In Louisiana, we have to do something different,” he said. “If Louisiana were just average, we’d all live four years longer and get a 33% raise… I’ve never aspired to be average, but I think we can at least expect to be average.”

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