Louisiana’s Record Savings Should Prompt Tax Breaks
The state’s revenue forecasting committee met last week. This was not the much-anticipated annual meeting to update the state’s revenue forecast, but rather one to handle some regular business. There’s rarely anything newsworthy coming out of a September REC, but this time, some pretty astounding news was shared—news that could (and should) spell relief for Louisiana taxpayers.
The Budget Stabilization Fund, also known as the state’s Rainy Day Fund, now has a balance of $975 million, which is the highest it has ever been. This is the state’s main savings account, which can be used in times of deficits in lieu of budget cuts, if two-thirds of the House and Senate approves.
Added to this great news was an announcement by Commissioner of Administration Jay Dardenne that “the new Revenue Stabilization Fund has about $3 billion dollars in it.” The Revenue Stabilization Fund was created in the state’s Constitution in 2016 to hold all corporate income tax and corporate franchise tax revenue that is collected in excess of $600 million each year to be used in times of emergency or following natural disasters. These two corporate taxes have exceeded that threshold for the last three fiscal years, leading to an enormous increase in the balance of the savings account.
In total, the state now has nearly $4 billion in savings.
The last few years’ worth of remarkably healthy state savings has allowed lawmakers to spend at record-breaking levels. In fact, over the past 10 years, the state’s revenue has increased by $5 billion, or 45%. The state’s total budget in fiscal year 2015 was $27 billion; today it stands at nearly $51 billion.
In 2021, the Legislature enacted tax reforms that lowered personal income tax rates in exchange for removing some deductions. They were considered “revenue neutral” reforms so that no spending restraint would be needed by government. But these reforms also included “triggers” that are supposed to lower Louisiana tax rates—personal income taxes and corporate franchise taxes—if revenue and savings accounts meet certain thresholds. It appears that those thresholds were finally met this year (some think corporate franchise taxes could be lowered by as much as half), but lawmakers have to recognize the triggers as having been met in order to allow the lower rates to go into effect next year. How and when this will be done is unclear.
What’s clear, however, is that it’s time for tax relief for Louisianans. Now that state government is collecting more than sufficient tax revenues to build up a healthy savings account for emergencies and is also more than capable of funding essential government services, Louisiana families and business owners should not be expected to keep paying excessive taxes. The threshold set by lawmakers has been met, and now tax relief, as promised, should be provided.
Pelican recently published a comprehensive tax reform plan that gives every taxpayer a break. In Louisiana’s Comeback: A Tax Reform for Our Brighter Future, we proposed a path to flatten individual and corporate income taxes. Businesses in Louisiana are currently being hit with a “triple-threat” of taxes on profits, inventory, and investment. Pelican’s plan proposes to eliminate corporate franchise and corporate inventory taxes, which are the most burdensome taxes businesses must pay whether or not they make a profit.
However, instituting this plan depends on the state government getting its fiscal house in order and controlling the growth of spending. With the record-breaking savings and spending levels of the last few years, there is no reason not to give Louisianans a break and kickstart the state’s economy into a brighter future.
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