Taking Steps Toward Tax Reform
Louisiana has a highly complex system of personal income tax. Our system includes too many complicated exemptions, deductions, and carve-outs for certain taxpayers that reduce only their burden, as opposed to everyone.
Moreover, we have a progressive tax system that increases the percentage paid when more money is earned. Legislation enacted in 2021 reduced the tax brackets from 2%, 4%, and 6% to 1.85%, 3.5%, and 4.25%, while eliminating the tax deduction for federal income taxes. While this was a great step towards simplifying the tax code and lowering some rates, much work still needs to be done.
Other than getting rid of the federal taxes paid deduction, there are still a host of deductions on the books that reduce the number of people that pay income tax, leaving a larger and larger burden of the tax bill on fewer people. The goal of any tax reform is to have a broader tax base so that everyone pays a lower rate, as opposed to a narrower tax base where those that do not benefit from special carve-outs pay a higher rate.
Flatter, simpler tax structures make it predictable for entrepreneurs and individuals to know what they will pay. States like Tennessee, Texas, and Florida that do not have a personal income tax are growing faster than Louisiana. At the same time, Mississippi is making great strides toward eliminating their individual income tax. Earlier this year, they passed legislation for a predictable 4% flat tax on all income over $10,000 and instructed future legislators to work toward the goal of eliminating the personal income tax altogether.
The goal of eliminating the personal income tax is to relieve workers from the burden of an oversized government while giving taxpayers a greater ability to control what they earn. It also eliminates the need to file state income tax returns every spring, especially in Louisiana, where the state return is actually longer to file than the federal return because of all the potential exemptions and deductions that could be possible if one qualifies–though few Louisianans even qualify for the majority of them.
While the ultimate goal is to eliminate the personal income tax in Louisiana, some intermediate goals can be accomplished to reduce the state’s income tax burden. The legislature can begin to roll back a majority of the deductions given to certain taxpayers, with the exception of the child tax credit, while at the same time further reducing and flattening the overall rates.