A Louisiana Senate committee voted Tuesday to amend the state constitution to lower the maximum allowable personal income tax rate and give lawmakers the ability to eliminate a major tax break for federal income taxes paid.
The state constitution caps the top state income tax rate for individuals at 6%. Senate Bill 159 by Sen. Bret Allain, the Republican who chairs his chamber’s Revenue and Fiscal Affairs Committee, would lower the maximum top rate to 5%.
The amendment also would strike from the constitution the state’s income tax break for federal taxes paid. Allain said a companion statute would establish a 4.25% top rate and abolish the tax break.
Policy wonks across the political spectrum have called for killing the federal income tax break, which puts state tax policy at the mercy of the federal government. When Congress reduces the federal income tax rate, it effectively causes a state tax increase in Louisiana, and the opposite also is true.
Cutting the state tax rate offsets the loss for higher-income taxpayers of the lucrative tax break.
“We’re trying to do this as revenue-neutral as possible,” Allain said.
While no one opposed eliminating the federal income tax break, the tax rate change was more controversial. Jan Moller with the Louisiana Budget Project, which focuses on how state policy affects low- and middle-income residents, argued the state needs to raise revenue, pointing to teacher salaries that are well below the regional average as one example where more spending is needed.
Moller also said the state’s high sales tax rate, which force lower-income residents to spend a larger proportion of their money on state taxes than those with higher incomes, makes Louisiana more of an outlier than the income tax rates.
Sen. Karen Carter Peterson, D-New Orleans, objected to advancing the bill, saying she thought its two goals should be in two separate bills. Allain, however, said, politically, dropping the tax break won’t fly without lower tax rates. Lawmakers moved the bill with a 10-1 vote.
The committee also approved Senate Bill 161, which extends an exemption of the corporate franchise tax on the first $300,000 of taxable capital from its current sunset at the end of this fiscal year into 2025. About 80% of Louisiana corporations would not have to pay the tax at all, Allain said. The Department of Revenue said the change would reduce state revenue by about $7.5 million annually.
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