The Louisiana House overwhelmingly advanced a state constitutional amendment proposal Thursday that fell four votes short of passage less than 24 hours before.
“This is one of the first steps in true, comprehensive tax reform that we have tried to do for decades,” Lafayette Republican Rep. Stuart Bishop said.
Bishop’s House Bill 274 calls for removing from the constitution references to existing individual income tax rates and the state’s income tax deduction for federal income taxes paid. The change would allow lawmakers to eliminate the tax break and change income tax rates.
House Bill 278, Bishop’s companion bill to the constitutional amendment that passed Wednesday, would eliminate the state income tax deduction for federal income taxes paid. Lawmakers and policy watchers consider the deduction bad policy in part because it ties Louisiana’s tax policy to the federal government’s. When the federal government cuts taxes, the state gets a windfall, but if federal taxes rise, state revenue falls.
In exchange for giving up the federal income tax deduction, taxpayers would get lower state income tax rates. Instead of three brackets charging a 2% tax rate on the first $12,500 of net income, 4% on the next $37,500 and 6% above $50,000, the rates would be 1.85%, 3.5% and 4.25%.
The Legislative Fiscal Office estimated the swap would increase taxes by a total of about $4.2 million per year, increasing state collections by that amount.
As amended Wednesday, the rates would be reduced further if revenue growth hits certain targets, similar to an approach taken in North Carolina. Voters would have to approve the constitutional amendment, which would be on the ballot in the fall of 2022.
The House sent HB 274 to the Senate with a 98-2 vote.
The House also voted 91-2 for Senate Bill 159 by Sen. Bret Allain, R-Franklin. It has similar goals to HB 274. The main difference is that it would set a maximum income tax rate of 4.75% in the state constitution that lawmakers would not be allowed to go above.
Rep. Robby Carter, D-Amite, said he preferred the wording in Bishop’s bill over Allain’s, arguing the latter would give voters the impression the federal income tax deduction would stay in place when lawmakers are planning to do the opposite. Bishop said all of the major tax bills will go to a conference between members of both chambers, so there will be a chance to work out the language.
“This bill has a long way to go and a short time to get there,” Bishop said of HB 274.
The session must end by 6 p.m. June 10.
The right-leaning Pelican Institute for Public Policy praised the passage of Bishop’s tax swap, including the amendment with the revenue triggers.
“By passing Chairman Bishop's individual tax rate reform, Louisiana will become more competitive with our neighbors and encourage our friends and family to continue to call the bayou state home,” Pelican CEO Daniel Erspamer said in a prepared statement. “Louisiana's tax code is a mess and now is the time to reform it.”
The left-leaning Louisiana Budget Project supports eliminating the federal income tax deduction but would rather lawmakers use the resulting revenue “to make investments in families to help end child poverty in Louisiana.”
“Instead, they chose to eliminate one tax break for the rich for another tax break for the rich,” the organization tweeted.
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