Louisiana winners—and possible losers—in the aftermath of GOP-led tax reform
CENTER OF ATTENTION: President Donald Trump makes remarks to the press on Dec. 22 after signing the $1.5 trillion tax cut bill in the Oval Office of the White House, prior to his departure to Florida for the holidays. (Photo by The Associated Press)
Local accountants and CPAs didn’t get much of a break over the recent holiday. They were scurrying to make sense of the $1.5 trillion tax reform package signed into law by President Donald Trump just days before Christmas.
While there are still a lot of unanswered questions about the tax package and what its implications will be long term, the consensus for now is that Louisiana, in general, will benefit in the short term.
For one, the plan will allow Louisiana victims of the 2016 floods to amend their tax returns for that year to deduct flood-associated losses, which some estimate could bring as much as $500 million to the state.
The law also waives a 10% penalty for flood victims who withdrew money from their 401(k)s to pay for flood damage.
Another provision is expected to increase offshore oil revenue for gulf states through the Gulf of Mexico Energy Security Act. That could bring another $100 million to Louisiana.
Still another victory is the retention of the historic building tax credit program. Louisiana is one of the country’s biggest users of the program, which incentivizes developers to return historic buildings to commerce by reimbursing them for up to 25% of their cost, and it was spared thanks mainly to efforts of Louisiana’s congressional delegation.
Finally, Louisiana’s booming petrochemical industry, like big business and industry around the country, will reap the benefits from a permanent reduction in the corporate tax rate, which has been slashed from 35% to 21%.
For the state’s many small businesses, the benefits of the legislation are not as clear cut, though most pass-through businesses—sole proprietorships, partnerships and S corporations—will receive a 20% tax deduction on their taxable income, which, it is hoped, will allow business owners to reinvest that saved money back into their businesses.
While many Louisiana taxpayers will see a reduction this year in their personal income tax bill, experts say effects of the changes will vary depending on a family’s size, income and which deductions they are eligible to take. Also, the personal income tax reductions are set to expire in 2025, unlike corporate income tax cuts, which are permanent.
Among the potential losers in Louisiana is LSU. A provision in the law repealing charitable donations for season ticket holders of university sports programs could adversely impact college sports.
The nonprofit sector is also concerned about several changes to the tax law that threaten charitable giving. Among them: Decreased tax rates will mean donations will be worth less in tax benefits when donors write them off on their returns; a rollback of the estate tax makes estate giving less enticing financially; and, perhaps most troubling, the plan nearly doubles the standard deduction, which is expected to dramatically reduce the number of people who itemize—or write off—specific, eligible expenses, including charitable gifts.
What that will mean for the nonprofit sector long term remains to be seen. Those provisions, like others in the law, are still being scrutinized by experts, who say it will be a while before they understand the full impact of the package on Louisiana and the nation as a whole.