Record state revenues: Could tax relief be in Louisiana’s future?
Louisiana continues to post record government revenues. Rather than planning to spend it, many hope this could mean that tax relief is on the way—leaving more money in taxpayers’ pockets. Last month, lawmakers and economists convened at the state’s Revenue Estimating Conference to discuss the amount of revenue the state received last year and how much they expect to receive going forward.
In a discussion of revenue that was received in fiscal year 2023 that ended on June 30, 2023, the committee discussed record-breaking tax revenues from businesses and individuals. The corporate income and franchise tax combined brought $1.6 billion into state coffers, well above the historical norm. The personal income tax collections were higher than usual as well.
While state tax revenues are expected to decrease over the next five years, they will remain higher than pre-COVID norms. However, because spending has increased so much over the last several years, the state is still predicting budget deficits beginning in fiscal year 2026.
Lawmakers on the committee also discussed the possibility of tax cuts going into effect next year. In 2021, the Legislature enacted tax changes that eliminated several tax deductions in exchange for lower tax rates for each income bracket. These changes also included revenue “triggers” in the personal income tax and the corporate franchise tax that would further reduce tax rates as state revenue grew.
The new laws listed three thresholds that must be met in order for the “trigger” to be enacted and rates to be lowered.
- Total state tax revenue collections had to exceed a certain growth rate set in state law.
- For the personal income tax “trigger” to be met, personal income tax revenues had to exceed that same growth rate. For the franchise tax “trigger”, the combined corporate income and franchise tax collections had to exceed the growth rate.
- The state’s Rainy Day Fund, or savings account, has to have a balance of at least 2.5% of state revenues.
The state’s economists pointed out during discussion that revenues were high enough to completely eliminate the corporate franchise tax and reduce the personal income tax brackets by 7%. This means that the tax rates would have gone from 1.85%, 3.50%, and 4.25% down to 1.72%, 3.26%, and 3.95%.
Unfortunately, the balance in the Rainy Day Fund doesn’t appear to be sufficient to meet the trigger threshold, despite the calls from many organizations to put more money aside during last year’s legislative session. The current fund balance is $974 million, which is approximately $55 million shy of the threshold. Therefore, individuals and businesses will not be receiving a tax break next year.
Lawmakers have an opportunity to budget more responsibly in the upcoming regular session that begins March 11, putting more of the excess funds that will surely be coming their way into the state’s Rainy Day Fund. This is a good idea to set the state on the right path for comprehensive tax reform and to guard against future budget deficits.
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