Louisiana House Votes on Flat Tax Bills Today

June 15, 2016

Louisiana’s budget shortfall has been a constant source of consternation for legislators, who are now convened in their third legislative session of the year (one special session ran Feb.-March, one regular session ran March-June, and now another special session is running June 6-June 23). The singular focus by some legislators and many in the media has been on generating new revenue, but there are some opportunities for true tax reform. Today, the biggest opportunity is on the House floor awaiting a vote at 3 p.m. Central: a bill package to change Louisiana’s multi-bracket individual income tax that tops out at 6 percent to a single rate income tax at 3.8 percent.

Three bills, HB 7, HB 17, and HB 33 would accomplish this reform. HB 33 removes the state’s obscure deduction for federal taxes paid (only three states have this deduction), HB 17 lowers tax rates and removes the state’s personal exemption and excess itemized deductions (swapping the personal exemption for an economically equivalent “zero bracket” below $12,500), and HB 7 caps the income tax rate at a maximum of 4.75 percent for future years.

Current and Proposed Individual Income Tax Rates

Current

Proposed

2%

>

$0

0%

>

$0

4%

>

$12,500

3.80%

>

$12,500

6%

>

$50,000

If this flat tax plan passes the legislature, it will require a vote of the people in November to remove the deduction for federal taxes paid, which is currently enshrined in the state constitution. On that November ballot, it would join a ballot question for removing that same deduction in the corporate code which was passed in the first special session. The corporate reform would transform the state’s multi-bracket corporate tax that tops out at 8 percent into a flat rate of 6.5 percent.

True tax reform broadens tax bases while lowering tax rates, and this proposal does both of those things in great measure. If passed, the individual income tax reform of this session would strengthen the state’s economic competitiveness, simplify the tax code, and produce revenue stability in the years to come. This is an opportunity to take the lemons of Louisiana’s budget crisis and turn them into lemonade, enacting one of the more impressive state tax reforms in the last decade.

Be sure to read our book on Louisiana’s tax system, particularly income tax options B and C, which recommend a similar flat tax proposal to the one being considered today.

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