Will Louisiana voters give up federal tax deduction for lower state income tax rates?
Louisiana voters will have the final say on whether to transform the state's income tax structure after Gov. John Bel Edwards signed two bills that trigger an October election on a constitutional amendment to revamp rates and deductions. The two bills passed by the Louisiana Legislature would lower personal and corporate income tax rates in exchange for losing the current deductions for federal income taxes paid. Republican Sen. Bret Allain of Franklin and Republican Rep. Stuart Bishop of Lafayette both led the effort as chairmen of tax-writing committees in the Senate and House. Louisiana currently allows taxpayers to deduct the federal income taxes they pay from the computation of their state income taxes. When federal income taxes go up, the state collects less in state taxes. When federal income taxes go down, state tax collections rise. That leaves Louisiana's income tax revenue at the mercy of federal tax law and contributes to a complicated tax structure economists and good-government groups like the Public Affairs Research Council have criticized for decades. (The package starts) the process of simplifying our overly complex and burdensome tax code that has sent jobs and opportunity to other states and hurt Louisianas families for far too long," said the Pelican Institute, a conservative-leaning public policy think tank. But the left-leaning Louisiana Budget Project was less enthusiastic. It puts tax cuts at the front of the line, Jan Moller said during the debate. The package would also eliminate the corporate franchise tax for small businesses and lower the tax rate for others. If voters give up their tax break for federal income taxes paid, state income tax rates would be reduced from 2% to 1.85% on the first $12,500 of income, from 4% to 3.5% for the next $37,000 and from 6% to 4.25% for $50,000 and above. Businesses would pay 3.5% on the first $50,000 of earnings, 5.5% on earnings above $50,000 and up to $150,000, and 7.5% on earnings above $150,000. Current rates range from 4% to 8%. The complicated swap would be largely revenue neutral for the state, something Edwards said was necessary for him to support the package. The Associated Press contributed to this report. Greg Hilburn covers state politics for the USA TODAY Network of Louisiana. Follow him on Twitter @GregHilburn1.