Louisiana’s legislature has enacted significant tax reforms, including reductions in personal and corporate income taxes, offset by an increase in the statewide sales tax.
Key components of the tax reform package:
- Individual Income Tax: Implementation of a flat 3% rate, down from the previous 4.25% for high earners, resulting in a $1.3 billion tax cut. The standard deduction for seniors has been doubled, and nearly tripled for individuals, effectively eliminating income tax for the lowest-income households.
- Corporate Taxes: Reduction of the corporate income tax rate to a flat 5.5%, lowering the highest tier from 7.5%. Additionally, the 0.275% corporate franchise tax has been repealed.
- Sales Tax Increase: To compensate for revenue losses from the income and corporate tax cuts, the state sales tax has been increased to 5%, making Louisiana’s combined state and local sales tax the highest in the nation.
- Constitutional Changes: The reform package includes significant constitutional amendments aimed at streamlining government operations, liquidating education trust funds to pay off school debt, and providing a permanent pay raise for teachers.
Governor Jeff Landry praised the reforms as “historic,” asserting they will allow residents to retain more of their income and stimulate business investment. However, critics argue that while the tax cuts favor corporations and higher-income individuals, the increased sales tax disproportionately impacts lower-income households, exacerbating the state’s regressive tax system.
The legislative process involved extensive negotiations, with some proposed measures, such as expanding sales taxes to additional services, encountering resistance. Despite these challenges, the core elements of the tax reform were passed during the special legislative session.