Lawmakers to discuss broad tax reforms including eliminating income tax in preparation of next year’s legislative session

September 11, 2022


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Tags: eliminate, income tax, Louisiana tax


Categories: Tax Preparation

Lawmakers to discuss broad tax reforms including eliminating income tax in preparation of next year’s legislative session

NEW ORLEANS (WVUE) – The House Ways and Means Committee will have its first of several meetings on Sept.13, to discuss broad reforms to Louisiana’s tax system, which include the elimination of personal income tax.

The meetings will be a way to study how it would work, along with discussions with local government officials, business leaders and stakeholders, according to Representative Richard Nelson (R) of Mandeville.

In the past, Nelson has been a major proponent of the elimination of the income tax. In 2021, he sponsored a package of bills to phase out the personal and corporate income tax and replace them with locally administered property taxes.

Nelson believes by eliminating the state income tax will help make the state more competitive in attracting residents and big business. By keeping income tax, he said it’s driving people and companies out of the state.

“When you look at the trajectory where Louisiana’s been and where we want to be, we’re kind of– the last 100 years– we’ve been lagging the rest of the country in growth,” said Rep. Nelson. “I think especially in the last couple decades we’re continuously seeing more business, more people leave to go to states like Texas and Florida, some of our more successful neighbors.”

He said by dropping the state income tax, it would simplify the state’s already complicated tax structure, and shift funding to local governments.

“We kind of have the worst of all the worlds which is really why we’ve seen how Louisiana has gone. We have all these advantages. All the natural resources, culture, everything everybody loves, but this tax system is really a big driver in turning people away,” he said.

But will it work? Economists say it could lead to higher taxes elsewhere.

“There’s a lot that would have to go into totally rewriting the tax structure,” said Gary Hoover, an economics professor at Tulane University.

He said states do this all the time– eliminating income tax.

“We’re either going to get less services once again or we’re going to end up seeing property taxes and sales taxes just go higher. We could also try to hide taxes by calling them fees but either way we’re going to see taxes go up somewhere,” said Hoover.

The concern there, he said, is how this could affect low-income households in the state; those who spend the most of their income on things that are taxed. It’s one of the pieces that make this discussion on tax reform so complicated.

“The higher your income is, the more you move up the income distribution, the more your consumption shifts from consumption of products to consumption of services. Services aren’t taxed,” said Hoover. “So as you move up the income distribution, services aren’t taxed, but goods are. Your tax liability is actually lower. That doesn’t happen for people at the lower end of distribution. They’re going to spend most of their income on the very things that are taxed. So increasing a sales tax would absolutely be regressive and fall much more on people who spend much more of their income buying goods that are taxed.”

“It’s gonna take big steps. I think this is one of the ways– the most impactful way to move us forward. We need to do something big to change the direction where we’re headed,” said Rep. Nelson.

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