The Public Affairs Research Council says the tax plan unveiled Monday by Gov. John Bel Edwards is a good starting point for tax reform in Louisiana, but the good government group is urging the governor and lawmakers to also embrace a constitutional amendment that eliminates—or reduces—the state’s federal income tax deductions while also lowering the income tax rate.
“Now is the time to move forward with a Louisiana state income tax reform that truly creates greater simplicity, stability and lower rates,” PAR writes in a commentary published Tuesday. “The potential Congressional reform of federal income taxation is all the more reason to move ahead with this state reform. This move is in the best interests of Louisiana taxpayers and the state’s fiscal outlook.”
Edwards on Monday outlined a list of tax proposals for closing $1 billion budget hole. The recommendations—modeled on suggestions from a nonpartisan study group created by lawmakers—would raise taxes on certain businesses and some middle- and upper-earning taxpayers.
Edwards says his plan maintains state tax funding at current levels and does not call for a net increase in state tax revenue collections—reasonable goals, says PAR, for a stable tax plan. But additional state revenue may be the result, PAR writes, based on the federal tax reform plan being debated in Washington. In short, federal reform will reduce taxes for many filers, meaning a lower state tax deduction for Louisiana residents and business owners. A smaller federal tax deduction means more tax dollars flow to the state.
Discontinuing the deduction, while also lowering the tax rates—something PAR has long supported—would not only account for changes in federal tax law but also uncouples Louisiana’s revenue stream from the whims of federal policy.
Any change to the state’s federal income tax deduction requires a constitutional amendment.
“This deduction, which is taken by individuals, families and many businesses on their state individual income tax form, adds up to a value of about $900 million in less taxes annually,” PAR says. “By eliminating this deduction, tax rates could be lowered by about 25% while still maintaining the same level of state revenue, studies have shown.”
The idea is good for several reasons, PAR says, among them: It allows a lower rate and a broader tax base, which are attributes of sound tax policy.
