Louisiana’s Tax Competitiveness Poised for Improvement

Louisiana ranks 40th in the 2025 State Tax Competitiveness Index, reflecting its historically complex and burdensome tax system. However, sweeping tax reforms enacted in 2024 are set to improve its ranking significantly in future reports. These reforms, which simplify income taxes, eliminate the business franchise tax, and address key structural challenges, mark a major step forward. Yet, to ensure these gains are sustainable, Louisiana must embrace spending restraint and use surplus revenues to further reduce and eventually eliminate income taxes.

What Is the State Tax Competitiveness Index?

The State Tax Competitiveness Index, formerly the State Business Tax Climate Index, measures how well states structure their tax systems. It evaluates five key areas: corporate taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. States that rank highest have tax systems that are simple, transparent, and designed to minimize economic distortions. Louisiana’s low ranking has long been driven by its high combined sales tax rates, punitive inventory taxes, and a franchise tax that penalized investment. The following tables show the rankings for Louisiana by tax category and compare them with those of other states.

Transformative 2024 Tax Reforms

The 2024 tax reforms during a special session called by Louisiana Governor Jeff Landry addressed several of these issues, creating a foundation for improved competitiveness:

• Elimination of the Business Franchise Tax: This long-overdue reform removes a major obstacle to investment and economic growth by ending a tax that applied to businesses regardless of profitability.
• Simplified Personal Income Tax: Louisiana now has a flat 3% income tax rate, the second-lowest among states with an income tax. This rate is paired with a standard deduction of $12,500 for individuals and $25,000 for couples, making the system simpler and more competitive.
• Streamlined Corporate Income Tax: The state replaced its graduated corporate tax structure with a flat 5.5% rate and added a $20,000 standard deduction, aligning with best practices for attracting business investment.
• Broader Sales Tax Base: By broadening the sales tax to include digital goods and services and maintaining a 5% state sales tax, Louisiana improved its revenue base while still contending with one of the nation’s highest combined sales tax rates.

These reforms will likely raise Louisiana’s ranking in the 2026 State Tax Competitiveness Index, closing the gap with states like Texas and Florida, which do not have income taxes.

The Role of Spending Restraint

While these tax changes represent meaningful progress, they will only deliver sustainable benefits if accompanied by spending discipline. Louisiana can use its current surplus to buy down income tax rates further and eventually eliminate them.

Adopting a fiscally conservative framework would prevent unsustainable budget expansions and allow tax relief to last. Spending restraint ensures that tax reductions are not followed by future tax hikes, preserving Louisiana’s competitiveness in the long term.

Recommendations for Bold Progress

1. Adopt Spending Caps: Constitutionally limit government growth to no more than population growth plus inflation, ensuring fiscal stability.
2. Use Surplus to Phase Out Income Taxes: Dedicate surplus revenues to reducing and eventually eliminating personal and corporate income taxes, putting Louisiana on par with no-income-tax states.
3. Streamline Sales and Property Taxes: Simplify the sales tax system and eliminate inventory taxes to encourage investment and reduce compliance costs.
4. Prioritize Fiscal Discipline: Avoid unnecessary spending increases and focus on policies that promote economic freedom and growth.

The Pelican State’s Opportunity

The 2024 tax reforms provide Louisiana with a transformative opportunity to overhaul its economic trajectory. These changes simplify the tax code, improve business competitiveness, and set the stage for Louisiana to rise in future editions of the State Tax Competitiveness Index.

To fully capitalize on these gains, Louisiana must pair its tax reforms with strong spending restraint and use its surplus strategically to phase out income taxes. By doing so, the Pelican State can emerge as a leader in economic growth and competitiveness, attracting businesses, residents, and investment.