Ahead of a looming fiscal cliff, Gov. Jeff Landry's “Louisiana Forward” tax reform plan would significantly reduce taxes for nearly all households in Louisiana, according to an independent 22-page report released Monday.
“Just about everyone is going to get a cut,” said Steven Procopio, president of the Public Affairs Research Council for Louisiana (PAR). “And the vast majority of people will see fairly large cuts.”
Economist Greg Albrecht conducted the analysis. He served as chief economist for the Legislative Fiscal Office from 1985 to 2022 and was hired by PAR and two other Baton Rouge-based nonprofits, the Council for a Better Louisiana, and the Committee of 100.
Louisiana’s current income tax system applies rates of 1.85%, 3.50%, and 4.25% for annual incomes below $12,500, between $12,500 and $50,000, and over $50,000, respectively. Developed in close collaboration with Secretary of the Department of Revenue Richard Nelson, Gov. Landry’s proposed plan would implement a flat 3% rate for individuals earning over $12,500 and households with combined incomes exceeding $25,000. It would also increase the standard deduction to $12,500, effectively eliminating income taxes for those earning below this threshold.
Other changes to income tax parameters include eliminating $1,000 deductions for dependents, filers age 65 and older, and blind residents, although the plan would double the retirement deduction from $6,000 to $12,000.
To partially offset the overall decrease in income taxes, Landry intends to significantly expand the current 4.45% sales tax to include a wide range of categories, such as digital commerce, various home and personal care services, lobbying activities and used car sales.
.45% of the current sales tax, dubbed the “half-cent” tax, is already a point of contention. It was created under the Edwards administration to help with strained state balance sheets. It's set to expire next year along with a 2% tax on utilities, and many conservative lawmakers are against renewing it.
Overall, the report notes that under the new plan, most lower-income households would see a slightly larger percentage drop in their income tax bills than upper-income households. Everyone would pay more sales tax, however high-income earners would see a larger increase.
This means the “progressivity” of the state’s tax system–or the share of taxes that wealthier residents pay–would increase modestly under the new system, albeit by a very small amount.
“I would say it's basically the same,” said Procopio. “But what it isn't is a massive increase in regressivity, which I think many people had concerns over.”
The sole exception is for those making less than $10,000 annually; they would pay more as a result of the increased sales tax, though it's worth noting these income brackets also include businesses reporting high revenue losses.
Louisiana has the 10th most regressive tax structure in America, meaning residents with low and moderate incomes pay a higher share of their overall income in state and local taxes than the wealthiest.
Jan Moller, executive director of the left-leaning think-tank Invest in Louisiana, says the relatively unchanged distribution system combined with lower taxes would negatively impact poorer populations.
“If everybody gets a tax cut, how are we gonna fund state government?” he said. “That's something that disproportionately affects low and moderate-income families because they tend to be more reliant on public services.”
According to Albrecht’s analysis, the combined effects of modifications to income and sales tax would result in a reduction to the state budget of nearly $400 million, though the report focused solely on the impact on individual taxpayers. Landry’s reform package also includes an overhaul of the state’s corporate tax structure, which proposes to slash corporate tax rates from 7.5% to 3.5% and abolish the corporate franchise tax. The intent is to gain back some of those fiscal proceeds by eliminating corporate tax credits.
An impending budget shortfall of over $737 million is expected in fiscal year 2026, with cuts to higher education and health care likely to take place if the state doesn’t find enough revenue to cover costs.
“This is caused from years of misguided fiscal policies and reliance on temporary federal relief funds,” Landry wrote in the Times-Picayune/Advocate on Tuesday.
“This tax plan as we know it today does not resolve the fiscal cliff, and in many ways would make it worse,” said Moller.
Landry says he will call a legislative special session for his tax bill next month, after the Nov. 5 elections. If passed by the legislature, the changes would need to be approved by voters in March.
