What’s fair? Fair is treating everyone the same, right? If that’s true, the way Louisiana currently collects state income taxes is anything but fair.
Louisiana employs three income tax rates: 2%, 4% and 6%. The more one makes, the higher percentage of income state government takes. For single filers, the state requires 2% of your first $12,500 in income, 4% of the next $37,500 and 6% on any net income over $50,000. Joint filers pay 2% on the first $25,000, 4% on the next $75,000 and 6% of net income over $100,000. Louisiana taxpayers can deduct money paid in federal income taxes from their state tax bill.
The best way to remedy unfairly taxing some at higher rates is with a flat tax. On Monday, members of the House Ways & Means Committee approved three versions of a flat income tax bill. The bills would mean all Louisiana taxpayers, regardless of income, would pay the same percentage.
The three bills are slightly different, but each of them would eliminate the federal income tax deductions. The idea is that allowing federal tax deductions brings too much volatility to the state’s budget when the feds raise and lower taxes.
The three flat tax bills would implement a flat rate somewhere around 4%. One bill, sponsored by state Rep. Barry Ivey, R-Central, comes with a standard deduction of $12,500 for single filers and $25,000 for families. That means a family earning $30,000 would pay 4.14% in taxes on only $5,000 after the deduction is applied. Each of the three flat tax bills are revenue-neutral, meaning they would not create a deficit or raise additional funds.
Gov. John Bel Edwards, a Democrat, favors eliminating the federal income tax deduction but does not support the idea of a flat tax. No surprise there. A flat tax is typically supported by conservatives. Moderates and left-of-center politicos typically like it when government picks winners and losers.
Those opposing the idea of a flat tax argue it’s not fair to the poor because they pay a higher percentage of their income. They call it regressive and claim it benefits the wealthy. That may be true. But there’s a bigger issue here. Do we want government treating everyone the same?
The debate over the fairness of a flat tax is indicative of what divides us as a nation. To what degree should individual liberty, ingenuity and hard work determine one’s success? How much of a role should government play in giving some an advantage over others and even the playing field?
The problem with targeting the successful is that often, higher-income earners take more risk and end up creating opportunity for the lower- and middle-income earners. High tax rates targeting the successful often prevent small-business owners from expanding and hiring more people. I don’t know about you, but I’ve never been offered a job by anyone poorer than me.
It’s not as though a flat state income tax is all that radical. Currently, nine states have a flat income tax with the same rate for all, regardless of income level.
There are plenty of states that target the successful with a high income tax. California has the highest state income tax with a top rate of more than 13%. That’s on top of what residents there have to pay the federal government in income taxes.
Seven states have no income tax. People living in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming pay no state income tax.
The U.S. Census Bureau reports Louisiana led the nation in population loss between July 2017 and July 2018 when an estimated 10,840 people left. During that same period, Texas, where there is no state income tax, gained 379,128 people.
Louisiana already has some of the highest sales tax and auto insurance rates in the nation. Skimming an additional 6% off someone’s income on top of all of that is surely causing some to look for greener pastures. People are voting with their feet.
Email Dan Fagan at firstname.lastname@example.org. Twitter: @DanFaganShow.