Key provisions of Louisiana Gov. Jeff Landry's plan to cut personal income and corporate taxes passed the state House of Representatives on Tuesday.
The House voted 87-12 to shift individual income tax rates to a flat 3% and 83-14 to eliminate the corporate franchise tax.
These bills, which now move to the Senate, are designed to shift revenue collection in the state to sales taxes on more items and away from income taxes as a bid to make Louisiana more attractive to taxpayers and businesses.
“We’re trying to put more money in the pockets of Louisiana citizens so they can choose on the sales tax side what they purchase,” said Rep. Julie Emerson, R-Carencro, who shepherded the bills through the House floor.
In addition to setting a 3% flat tax, the bill would raise the standard deductions for individuals. Currently, individual income tax rates are tiered so that the rates increase as incomes rise. The maximum tax level is just over 4%.
Emerson said that individual income taxes punish those who make more money. Anyone who makes more than $12,500 a year would receive lower rates, she said. The average income in Louisiana in 2022 was about $30,000 according to the U.S. Census Bureau.
“This is our attempt to consolidate it into a flat tax, which we believe is more fair,” Emerson said.
Some Democrats have countered that collecting more money from sales taxes is unfair to residents with lower incomes.
The elimination of the corporate franchise tax, which is a tax merely to own property or conduct business in the state, would begin Jan. 1, 2026, with certain business tax credits ending June 30, 2025. Emerson and her allies argued that this move would attract out-of-state business to Louisiana.
“The best thing about this tax is that it has zero impact on the state general fund,” Emerson said, referring to the state’s ability to spend money. She went on to explain that all funds received from the corporate franchise tax go directly into the Revenue Stabilization Fund, a state trust fund.
With this, some representatives expressed their worries regarding who would gain the most from the removal of the tax.
“Where would the savings from eliminating this tax go to?,” asked Democratic Rep. Matthew Willard of New Orleans, implying that corporate stakeholders, rather than workers in Louisiana, would receive the most significant advantages.
Rep. Mandie Landry, also a New Orleans Democrat, expressed her concern, implying that this repeal would unfairly favor non-Louisiana corporations at the expense of local-owned businesses.
“This is mostly going to benefit out-of-state corporations,” Landry said.
Emerson described the franchise tax as “regressive” and “arbitrary” and claimed its repeal would allow Louisiana to overall attract more businesses to the state that might choose other states with more advantageous tax systems.
Each part of the package, including a proposal to start charging sales taxes on many business services, works together, Emerson said, to fill the loss in money caused by cutting income taxes.
“The package all works together to get as close to revenue neutral as possible,” she said.
However, some representatives were uncertain about how that would work out in reality.
Many of the criticisms of the bills had a similar theme: Why is the Legislature voting on creating a loss of revenue without knowing if it will also pass the measures to make up the money?
“So we’re supposed to vote on cutting the budget by about a billion dollars a year without roughly knowing now how we’re going to plug it?” asked Landry, the Democratic lawmaker.
Bills seeking to fill the revenue loss will go before the House in the coming days. One bill features a list of nearly 50 “luxury services” like car towing and pet grooming that would be subject to sales tax.
Other legislation eliminates or reduces tax exemptions that certain businesses and industries use such as the film industry to make movies in Louisiana.
The House also approved on Tuesday a complex series of provisions that will go before voters on March 29. Lawmakers would transfer certain tax benefits like the $75,000 homestead exemption on property taxes from the state Constitution to state statute. Each bill passed with about 80 votes.
The changes would also merge two state savings accounts, double the standard deduction on income tax forms for seniors and exempt the purchase of prescription drugs from local sales taxes. It would pave the way to give teachers a $2,000 raise by using $2 billion in education trust funds to pay down a portion of the teachers retirement system debt and use the savings on debt service to pay for the raises. The proposal would give school support workers a $1,000 raise.