Louisiana’s regular session of the Legislature begins April 12. It is a fiscal session which means the 144 legislators can change tax policies as they spend $36 billion (really, $39 billion with judicial and capital outlay budgets) to run government operations for 4.65 million people. Gov. John Bel Edwards’ administration did not recommend budget cuts in spite of the pandemic and will support revenue-neutral tax changes.
Planning for the fiscal year 2021-22 should consider how serious the out-migration of workers is to current and future budgets. Each year fewer people work to support the state’s growing dependent population.
As of December, Louisiana had 1.94 million people employed which is only 41.7% of our total population. We need more taxpayers, not more taxes.
Eliminating personal income taxes would make Louisiana more attractive to workers as nine other states are: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, with two states taxing dividends and investment income, but not wages, Tennessee and New Hampshire.
Louisiana is one of the 41 states taxing wage and salary income.
Four of nine states without income taxes are in the top-ten fastest growing states over the past decade, six are in the top 20. Louisiana is 36th for population growth.
Four of nine states without income taxes are in Forbes’ top-ten list of best states for business.
Even Mississippi is considering a phase-out of individual income tax by 2030.
Florida hasn’t had a personal income tax for 165 years but has corporate income taxes and sales taxes. Property taxes are collected by local governments and are higher than most states.
Retirees are a large population in Florida and while sales and property taxes are above the national average, Florida’s overall tax burden is just 6.82%, the fifth lowest in the country according to WalletHub, June 2020.
Louisiana’s tax burden of 9.15% is 14th highest with Alaska lowest at 5.16% and New York highest at 12.28%. WalletHub’s calculation is based on the proportion of personal income paid for major taxes.
Texas forbids personal income taxes in its constitution and so relies on high sales, use and excise taxes; only a handful of states have higher property tax rates.
These thumbnails are for comparison purposes to present an idea of how our Gulf Coast competition structures their revenues to pay for government services.
A recent report from the Tax Foundation, the nation’s leading independent tax policy think tank since 1937, says Louisiana’s top marginal income tax rate of 6% on incomes of $50,000 and over is among the highest in the South and highest in the Deep South.
The big push during the regular session will be to centralize sales tax collections and resolving that problem is very important for many businesses.
But the real competition is for workers, if Louisiana wants to attract new businesses or get existing businesses to stay and expand. Workforce is our top natural resource and Louisiana has been losing the competition for workers to other southern states, especially ones with no income taxes.
The Tax Foundation says it’s generally true that income taxes are more volatile than consumption taxes in an economic downturn as income tends to fluctuate more than consumption.
In a global pandemic, when social distancing restrictions and the nature of pandemics caused an initial drop in consumption, sales taxes have rebounded and returned to pre-pandemic levels. Income taxes, which have also rebounded, are nevertheless still seeing some losses.
New data shows that a year after the pandemic wrought economic devastation, forcing states to revise revenue forecasts preparing for the worst, for many the worst didn’t come. One big reason: $600-a-week federal supplements that allowed people to keep spending even when they were jobless and states kept collecting sales taxes. This was in addition to usual state unemployment benefits.
A JP Morgan survey of the states called 2020 “virtually flat” with 2019, based on the 47 states that report their tax revenues every month, or all except Alaska, Oregon and Wyoming. Consumer spending bolstered the states’ sales tax revenues and the federal unemployment benefits buoyed income tax receipts in the 36 states that tax unemployment benefits.
Volatility is not the only factor to consider. A state’s combination of tax sources has implications for revenue stability and economic growth.
Legislators can eliminate the personal income tax if they cut services paid for by the state that locals should pay, thereby moving taxes and services closer to the people. Two million Louisiana workers can’t afford a $39 billion state government. It’s time to start cutting.
According to the Tax Foundation, income taxes tend to be more harmful to economic growth than consumption taxes and property taxes.
Maybe now’s the time for a change?
Email Garey Forster at Garey.Forster@gmail.com.