Analysis: Louisiana’s Regressive Tax Structure Disproportionately Affects Low-income Residents

BATON ROUGE – A new study released Wednesday by the Institute on Taxation and Economic Policy and the Louisiana Budget Project finds that Louisiana has the 14th most unfair state and local tax system in the country, with the lowest-income Louisianans paying almost two times more in taxes as a percent of their income compared to the state’s wealthiest residents.

The study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, evaluates all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes.

“The wealthiest Louisianans have benefited most from our growing economy,” said Jan Moller, executive director for the Louisiana Budget Project. “It’s not unreasonable to ask the highest-income residents and corporations to pay their fair share of state and local taxes.”

Louisiana’s tax system is regarded as regressive because the lower one’s income, the higher one’s effective tax rate. This is in part because Louisiana, like most other states, relies more heavily on sales and excise taxes to raise revenue.

According the report, the lowest-income Louisianans pay 9.2 percent of their income on sales and excise taxes, compared to just 1.2 percent paid by the wealthiest residents. The state tax system also provides an income tax deduction for both federal and state income taxes paid, which adds to the regressivity.

“Rising income inequality is unconscionable, and it is certainly a problem that local, state and federal lawmakers should address,” said Meg Wiehe, deputy director of ITEP and an author of the study. “Regressive state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State lawmakers have control over how their tax systems are structured. They can and should enact more equitable tax policies that raise adequate revenue in a fair, sustainable way.”

Multiple efforts to reform Louisiana’s tax structure by eliminating unorthodox deductions that favor the wealthy have run aground in the state Legislature. Instead of making needed structural reforms, lawmakers balanced the state budget by renewing 0.45 of an expiring one-cent sales tax until 2025. To mitigate some of the impact of the sales tax on low-income working families, legislators took the pro-active step of increasing the state Earned Income Tax Credit starting in 2019.

Anti-tax advocates across the country and in Louisiana continue to push for tax policies that reduce tax rates for the wealthy and businesses. But there is a growing movement against this agenda as the public recognizes continual tax cuts for the wealthy and corporations mean less money to adequately fund our children’s education, our parks and public spaces, our infrastructure and other basic services.

Click here to read the full ITEP report. Click here to read a blog post by LBP’s Neva Butkus.