For more information on Louisiana’s budget and the Pelican Institute’s solutions to the state’s fiscal issues, view the full paper by clicking here.
Tax Reform
With the state economy struggling, and tens of thousands of Louisianans moving out of state, businesses and families need tax reform—to give them an incentive to come to, and remain in, Louisiana. A successful series of across-the-board reforms, touching all layers of the tax code—corporate and individual, and sales and income taxes—will promote growth and expand opportunity. Our state deserves a 21st century tax code that encourages growth and taxes individuals and businesses transparently and fairly. Tax reform can spark an economic revolution in Louisiana—if only lawmakers take the initiative to act, and act boldly.
THE PROBLEMS
- Louisiana’s balkanized system contains numerous targeted tax exemptions, all of which pick winners and losers through the tax code.
- Provisions encourage special interest lobbying, and add unnecessary complexity to the tax code for those who do not have lobbyists to advocate on their behalf—from middle-class families to struggling small businesses.
- Current system raises state taxes on Louisianans every time they receive a federal tax cut.
- Many provisions of the tax code discourage jobs and economic activity in Louisiana.
- The structure and complexity of the revenue code serve as a significant disincentive for companies—or individuals—looking to relocate to Louisiana.
- The state homestead exemption and the Industrial Tax Exemption Program (ITEP) unduly limits parishes’ ability to raise revenue.
- Legislative approval of local sales tax rates limits local governments’ autonomy over their finances.
- The centralized tax administration is fostering inefficiencies for retailers and businesses and is adding further confusion to an already-complex system.
THE SOLUTIONS
- Flatten the tax system to lower the current 2% bracket to 0% (effectively eliminating it), and reduce the 6% bracket to 4%.
- Repeal the deduction for federal taxes in the state Constitution, and use the savings to fund lower tax rates overall.
- Eliminate excess itemized deductions – utilized by a small percentage of filers – and dedicate the savings to providing across-the-board relief through lower taxes.
- Find an additional $200-250 million in tax preferences to eliminate to fund lower rates.
- Repeal the corporate franchise tax.
- Repeal the refundable credit, and start the process for repealing parishes’ authority to assess inventory taxes, which represent an ineffective way for parishes to raise revenue.
- Repeal the corporate income tax or lower rates substantially—from the current 8% rate down to about 3%—by repealing the corporate deduction for federal taxes paid and various targeted incentive programs included in the corporate tax code.
- Repeal the myriad rebates, deductions, and credits (both refundable and non-refundable) present in the corporate tax code and use the savings to lower corporate tax rates overall to give firms greater incentive to create jobs.