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RESET Louisiana on Monday released its analysis of Gov. Jeff Landry’s recently proposed Louisiana Forward tax reform package.
RESET is a nonpartisan collaboration between the Committee of 100 for Economic Development, the Council for a Better Louisiana and the Public Affairs Research Council of Louisiana. Greg Albrecht, a research fellow at LSU’s Center for Energy Studies who served as the Louisiana Legislative Fiscal Office’s chief economist from 1991 to 2022, was hired to conduct the analysis.
The tax reform package includes 10 bills aimed at modernizing and simplifying Louisiana’s tax system while also spurring economic development. RESET’s analysis focused exclusively on the potential impacts of the proposed personal income and sales tax changes on households at various income levels, as those taxes make up nearly 60% of state tax collections.
When it comes to the income tax, the Landry administration is proposing a flat 3% individual income tax rate with a standard deduction of $12,500. Currently, income up to $12,500 is taxed at 1.85%; income between $12,500 and $50,000 is taxed at 3.5%; and income above $50,000 is taxed at 4.25%. Landry and Department of Revenue Secretary Richard Nelson have expressed their desire to phase out the income tax entirely by 2030.
As for the sales tax, the Landry administration is looking to renew a 0.45% sales tax that is set to expire in July 2025. Allowing that tax to sunset would cost Louisiana some $450 million next year. The proposed bills would also align local and state sales tax bases; eliminate dozens of sales tax preferences; eliminate sales taxes on prescription drugs; expand sales taxes to include digital goods and services; and make permanent a partial sales tax exemption on business utilities, among other changes.
Three key findings emerged from RESET’s analysis of the tax reform package:
- The vast majority of taxpayers would see tax cuts. Almost all taxpayers would see cuts of 10% or more and more than half of taxpayers would see cuts of 20% or more.
- The income tax would become “modestly more progressive” and the sales tax would become “slightly less regressive.” Overall, the distribution of tax liabilities across all income levels amounts to “little or no change” from the current tax system.
- The Department of Revenue income tax estimates are “very close” to the projections generated by the RESET simulation model. However, state estimates do not appear to take fiduciary and nonresident filers into account. When those filers are considered, the overall reduction in individual income tax revenues increases by $45 million. RESET encourages the Department of Revenue to update its estimates to account for those filers.
Lawmakers will consider the tax reform package in a November special session. Read more highlights of RESET’s analysis here, or read the full analysis here.
