Thinking Clearly About Louisiana Tax Policy

In early April, Louisiana legislators will convene for a two-month session focused on tax policy. Already there is lots of talk from public officials, interest groups and others about proposed changes to the way Louisiana taxes its citizens and corporations. 

Any reforms made to Louisiana’s tax structure should move us toward a more fair, adequate, competitive, transparent and sustainable revenue system – one that allows for much-needed investments in education, public safety and the social safety net and gives every Louisianan the opportunity to thrive. 

But tax “reform” means different things to different people. And in the coming weeks we are likely to see misinformation about the state’s tax system, and ideas for “fixing” it that would actually take us in the wrong direction. 

Below is a guide to some of the common myths – and the facts – about Louisiana’s tax system.

Myth: Louisiana’s tax code is too complicated, and the solution to this is to eliminate the state income tax or replace the current, graduated income-tax structure with a flat rate. 

Reality: Parts of Louisiana’s tax structure are indeed too complicated (such as the antiquated way we collect sales taxes). And the state income tax includes a massive, unorthodox deduction for federal income taxes that mostly benefits the wealthiest households. But eliminating the income tax or moving to a flat tax would not solve these problems. 

The reality is that Louisiana’s tax structure is deeply regressive, meaning low-income households pay a higher share of their income in state and local taxes than the wealthiest. Louisiana relies heavily on sales taxes, which hit poor families the hardest, while our income tax comes with lucrative deductions that mainly benefit the richest households. Moving to a flat tax or eliminating the income tax altogether would make this problem worse – shifting the responsibility for paying taxes from those who can most afford it to families that are already struggling. Because the legacies of slavery and Jim Crow have left Black Louisianans poorer than white Louisianans overall, this would also mean raising taxes on Black people while cutting them for white people

Eliminating income taxes also would create a massive hole in Louisiana’s budget, requiring the state to either make devastating cuts to state services or make up the revenue with other taxes. Similarly, a flat tax would mean higher taxes for middle-income households and a tax cut for those at the very top. 

Myth: College graduates, wealthy people and businesses are leaving Louisiana for other states because of our tax policies. If we raise taxes, even more would leave.

Reality: Many young people – especially those with college degrees – do leave Louisiana for places like Atlanta and Houston. But it’s not because of our tax policies. Instead, college graduates who leave the state often cite the lack of employment and professional prospects, and the fact that public services like education and infrastructure lag behind other states. In many cases, those leaving the state flee to places with higher taxes, but better public services and higher-paying jobs. 

Dr. Gary Wagner at the University of Louisiana at Lafayette has studied Louisiana’s outmigration, and found that Louisiana has a higher poverty rate and much lower job growth relative to the states where people are moving.  Louisiana is slightly ahead of Arkansas in median income, but is far behind the rest of these (and most) states. Meanwhile, the average Louisianan pays less of their income in state and local taxes than all the states included in this list other than in Texas (where residents pay the same percentage of income). In fact, Louisiana has the third-lowest income tax collections per capita of any state with income taxes.

Myth: Business and income taxes discourages businesses and prospective employees from moving to Louisiana. We need tax reform to make our state a more attractive place for business and work.

Reality: Economic research has found that taxes play a negligible role in why people and companies move from state to state, and don’t help businesses to create more jobs. Louisiana already does a pretty good job providing lucrative subsidies to major corporations to make them come to the state, often letting them off the hook for taxes for years at a time. So, this whole notion that Louisiana is creating a hostile economic environment for corporations and the wealthy with its tax system, while handing out millions-to-billions in taxpayer dollars to them, seems a bit far-fetched.

It’s time to stop letting these arguments for so-called economic development go unchallenged, and call them out for what they’re really saying: Louisiana should hand taxpayer dollars to corporations and the wealthy at the expense of investing directly in all the people of Louisiana. 

Myth: Louisiana’s state government is too big and offers too many services. We need to cut taxes and reduce the size of state government.

Reality: When Louisiana’s economy grew rapidly in the aftermath of Hurricane Katrina, it brought in new tax revenue and the state government grew as well. But the boom quickly gave way to a bust. The 2008-10 Great Recession, combined with short-sighted tax cuts, led to deep cuts in state government. Under Gov. Bobby Jindal, the state workforce was reduced by nearly one-third, and Louisiana led the nation in budget cuts.

Since that tumultuous time, state spending has been essentially flat, when adjusted for inflation and measured as a share of the overall state economy. And Louisiana is in the bottom third of states in state spending as a share of the economy, according to the Legislative Fiscal Office. 

Conclusion: The economic crisis caused by Covid-19, coupled with the global retrenchment of the oil and gas industry, has created historic challenges for Louisiana’s people and government. Rising to these challenges will require new investments in people and communities, to ensure that everyone, regardless of their race or ZIP code, has the tools they need to be successful. These investments are impossible without a strong, stable revenue structure, which is something the public and our policymakers should keep in mind as they look for ways to reform our tax code. 

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