A revamp of Louisiana’s income tax code powered through the state Senate Tuesday, giving hope to supporters that the overall plan – which involves several pieces of legislation – will ultimately win legislative approval.
If it does, the change would go before voters in either October 2021 or October 2022 because it would amend the state Constitution.
The package of bills would eliminate a popular tax break that allows individuals to deduct their federal tax payment on their state income tax return. In conjunction, it would lower income tax rates.
Most people would pay about the same amount of tax, and the state would collect about the same amount of revenue, state Sen. Bret Allain, R-Franklin, told his colleagues Tuesday.
“We’re trying to move the state forward from bad tax policy,” said Allain, who is the prime mover behind the tax swap.
Allain has the backing of public policy experts who say that reducing the top tax rate would make Louisiana a more attractive place for investors and others considering a possible move to the state. Noting that Louisiana is only one of two states that allow the full deduction of federal tax payments, they say eliminating it would simplify the tax system.
Allain wants to reduce the top rate for individuals from 6% to 5% and for corporations from 8% to 6%.
Allain and the outside groups say that investors too often look at the top rate without digging down and seeing that the effective rate is much lower because of all the tax breaks in Louisiana’s tax system.
Companion individual income tax measures by state Rep. Stuart Bishop, R-Lafayette, passed the House Ways and Means Committee on Monday.
Another part of the package would carry out the same tax swap for corporate taxes. Ways and Means passed that piece last week.
Senators voted on one part of the overall plan on Tuesday, Allain’s Senate Bill 159.
The bill faced a potential roadblock when state Sen. Barrow Peacock, R-Bossier City, attempted to lower the top rate in the Constitution to 4.5%.
Allain asked him to withdraw the amendment, saying it threatened to undo a delicate package he has constructed. Allain promised to work with Peacock in the coming days. Peacock, however, refused to back down, but his amendment lost 5-34.
The Senate then approved Allain’s bill, 36-3. It now goes to the House Ways and Means Committee for consideration.