At the Session: Income tax bills advance
Two bills reducing Louisiana’s individual income tax rates cleared the House Ways and Means Committee without opposition Monday, and a third one was involuntarily deferred.
All three bills have accompanying constitutional amendments that remove tax brackets from the state constitution and eliminate some federal income tax deductions on state income tax forms.
Amendments require two-thirds votes in the House and Senate and majority approval from the state’s voters.
Rep. Stuart Bishop, R-Lafayette, and chairman of the committee, is sponsoring House Bill 278 that reduces the existing three individual income tax levels. It was the first one approved by the committee and that sent it to the full House for debate.
Rep. Jerome Zeringue, R-Houma, is author of HB 171 that establishes a flat income tax of 4 percent, and it was also sent to the full House.
The committee deferred HB 529 by Rep. Mandie Landry, D-New Orleans, that added 7 percent and 8 percent tax levels for individuals with higher incomes.
Individuals currently pay a 2 percent tax on the first $12,500 of their net income, 4 percent on the next $37,500 of net income and 6 percent on net income in excess of $50,000. Those income totals are doubled for joint filers.
Existing percentages in Bishop’s bill are reduced from 2 to 1.85 percent, 4 to 3.51 percent and 6 to 4.25 percent. The proposed legislation also eliminates the deduction for federal income taxes paid and limits the deduction for excess federal itemized personal deductions to certain medical care expenses.
A fiscal note with the bill says it will result in an annual taxpayer liability increase of $4.2 million annually. It adds that filers who itemize on their federal returns will face a tax increase. Filers who don’t itemize will face a tax decrease. Only 20 percent of state income taxpayers itemize on their tax forms.
Zeringue’s bill provides that there is no individual income tax on the first $12,500 of income and 4 percent on income in excess of $12,500. Joint filers would pay 4 percent tax on income above $25,000. The legislation also repeals the corporate deduction for federal income taxes paid and reduces by 50 percent the amount of film tax credits that can be paid each year.
A fiscal note shows the legislation would reduce state revenues by $16.6 million in 2022-23 and $14.4 million in 2023-24. Revenues would increase by $30.2 million in the next two fiscal years.
Legislative leaders have said their goal during this fiscal session is to reform the state’s tax code but make the tax changes revenue neutral. They have explained that some bills will lower revenue while others will increase revenues. However, the goal is to make sure revenues aren’t higher or lower than existing revenues.
Landry’s bill would have established a 6 percent tax on $450,000 of net income, 7 percent on the next $500,000 of net income and 8 percent on net income in excess of $1 million. Her legislation would have eventually raised annual revenues by $29.3 million.
Sen. Bret Allain, R-Franklin, and chairman of the Senate’s tax committee, has been working with Bishop on the tax reform measures. He said the state’s tax code is currently ranked in 42nd place and the changes being proposed at the current session could lift the state to the mid-20s or even higher.
Allain said the income tax rates could be reduced even lower if the changes being considered now become law. However, he said the first step is to eliminate the federal income tax deductions, which are costing the state over $800 million annually.
Legislators will also have to decide whether to eliminate other tax breaks that are the subjects of other bills.
Good government groups submitted cards in support of the income tax changes. Robert Travis Scott, president of the Public Affairs Research Council (PAR), said only two states allow the federal income tax deductions, and Louisiana is the only one that has those deductions in its state constitution.
Scott said tax studies for years have recommended getting rid of the federal deductions. He said 32 other states have lower or no income taxes. When asked, Scott said Bishop’s three-rate reduction bill is better than a flat tax.
Some Democrats on the committee and speakers said the state has many unmet needs and the revenue-neutral aspect of the changes doesn’t help satisfy those needs.
Louisiana Gov. John Bel Edwards speaks in the House Chambers during a previous legislative session.