Big Story: Eliminating Louisiana’s income taxes: Economic boost or impossible dream?

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THE BIG STORY

Eliminating Louisiana’s income taxes: Economic boost or impossible dream?

WHAT YOU READ: Louisiana lawmakers have begun looking into whether the state should eliminate its individual and corporate income taxes.

WHY IT MATTERS: While the effort faces an uphill battle, it could spur important conversations about what Louisiana could and perhaps should be doing to try and create a more efficient and effective government, which in turn might make the state’s economy more competitive.

HE SAID IT: “At the end of the day, we’re a banana republic that’s run out of bananas,” Rep. Richard Nelson, the Mandeville Republican who authored the resolution that led to the study, told the House Ways and Means Committee.

BACKGROUND: Scrapping the state’s income taxes has been proposed before, most famously in 2013 by then-Gov. Bobby Jindal, who got so much pushback when he floated the idea prior to the legislative session that he abandoned it on the session’s first day. Last year, Nelson proposed getting rid of both income taxes and increasing the state sales tax rate.

THE PROBLEM: Income taxes raise around $5 billion a year, so losing that money could lead to massive cuts to education, health care, transportation and other priorities. Lawmakers already have to figure out how to manage losing about $420 million per year when a temporary 0.45% sales tax rolls off the books in 2025.

SO WHY DO IT? Some of the committee’s discussion revolved around Louisiana’s sluggish population growth compared to booming states like Texas and Florida, which don’t have income taxes.

ON THE OTHER HAND: The relationship between tax rates and where people move is uncertain at best, and lists of the leading states for in-migration include those that don’t charge income tax, such as Texas and Florida, as well as those that do, such as Georgia and North Carolina.

THEN AGAIN: Population growth is a measure of success but it’s not the end goal, Nelson says, adding that economies can be vibrant with or without income taxes. He says the main benefits of eliminating state income taxes would be to make Louisiana’s tax code more competitive and shrink state government, pushing more authority to the local level.

“If you cut out that state-administered income tax, it gives you the opportunity to put a lot of the decision-making and funding back to the local governments, which are much more effective and efficient in spending taxpayer money,” he says.

THE DETAILS: While Nelson says some of his conservative colleagues would be happy to do away with income taxes and call it a day, realistically, a plan will be needed to replace that revenue. He expects the committee will look to other states without income taxes for guidance, and suggests that broadening the local property tax base will be an important part of the mix. About one-third of Louisiana homeowners pay no property tax, he adds.

LONG ODDS: While next year’s session will emphasize fiscal issues, lawmakers typically are even more reluctant than usual to tackle sweeping changes in an election year. Lots of tax breaks and subsidies likely would have to be axed to make the numbers work, and those programs have powerful advocates. Any hint of messing with the state’s generous homestead exemption will bring out the torches and pitchforks. It’s going to be tricky, in other words.

THE LAST WORD: Nelson says that while “the devil’s in the details,” his colleagues seem to at least be open to the idea. “Something needs to be done,” he says, “and I think they realize it’s got to be something big.”

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