The wealthiest households in Louisiana continue to pay state and local taxes at a lower rate than those in the middle class and below, according to a new analysis that breaks down the tax rates by income brackets in every state. The report, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States found that households with incomes in the lowest 20 percent pay nearly twice as much of their income in taxes as households in the top 1 percent. Louisiana has the 14th most regressive tax code in the country, according to the report by the Institute on Taxation and Economic Policy.
Louisiana households in the poorest 20 percent earn less than $17,500 per year, yet pay an average of 11.9 percent of that income in state and local taxes – higher than the national average of 11.4 percent. Households in the top 1 percent bracket, with a minimum taxable income of $473,000, pay at a rate of 6.2 percent of their income in taxes – well below the national average of 7.4 percent.
The reason the poor pay more than the rich is fairly simple: Louisiana relies heavily on sales taxes to provide revenue for state and local governments, and sales taxes typically hit poor families the hardest. That’s because low-income families are forced to spend everything they make on necessities – many of which are subject to state and local sales taxes. While the state has taken laudable steps to relieve this burden by exempting groceries, prescription drugs and home utilities from the state sales tax, the combination of state and local sales taxes mean low-income families continue to pay around 9 percent of their income in sales tax.
Families in the top 1 percent have an average income of $1.1 million, but only a small portion of that goes to taxable purchases in Louisiana Much of their income instead goes to investments and savings, so a much lower percentage (1.2 percent) of their income is paid in sales tax.
Although Louisiana’s state income tax has a progressive rate structure, with the top 6 percent rate only applying to income above $50,000 (or $100,000 for married couples filing jointly), this progressivity is offset by the federal income tax deduction, which allows taxpayers to deduct federal income taxes from their state taxable income and disproportionately benefits the highest income earners. Louisiana homeowners also pay some of the lowest residential property taxes in the country, which adds to the regressivity of the tax structure.
Louisiana’s upside-down tax structure helps drive the state’s massive income inequality, and makes it harder for low- and moderate-income families to make ends meet and invest in their future. The good news is that policymakers have the ability to change course, by embracing some of the common-sense tax reforms that have been proposed by LBP and others.