Tax swap now left to Louisiana voters as Governor Edwards signs legislation
Gov. John Bel Edwards on Monday signed the package of tax exchange bills that, if approved by Louisiana voters, will repeal the federal tax deduction allowed on state tax returns in exchange for rates lower tax rates for individuals and corporations. The legislation will only take effect if residents vote in favor of a proposed constitutional amendment on October 9.
Proposal constitutional amendment would remove the three Louisiana personal income tax brackets that are in the state’s constitution and reduce the maximum allowable tax rate from 6% to 4.75%.
Currently, the constitution requires a deduction from federal taxes paid for the purposes of calculating state income tax returns. Lawmakers and tax policy experts have pointed out that the current law linking Louisiana’s income to federal tax rates creates income volatility beyond the control of state lawmakers.
When federal rates are high, Louisiana taxpayers deduct more from their state returns, resulting in less for the state. The reverse happens when federal rates are low; the state gets more revenue. With federal tax rates often changing with each new president, lawmakers fear they will face budget problems if Congress increases taxes under President Joe Biden.
The proposed constitutional amendment would allow – rather than require – such a deduction. If voters approve this amendment, it will lead to the repeal of the tax deduction and the introduction of the reduced tax rates and other so-called “tax reform” provisions included in the bills Edwards signed on Monday.
Louisiana’s new personal income tax rates would be as follows:
- 2% to 1.85% on the first $ 12,500 of net income
- From 4% to 3.5% on the next $ 37,500 of net income.
- From 6% to 4.25% on net income over $ 50,000.
The legislation would also enact tax cut triggers that would automatically reduce future tax rates if the state experiences economic growth at a certain threshold and the state’s “rainy day” fund is at a certain equilibrium. . Such triggers go against the advice of the Louisiana Budget Project.
Louisiana’s new corporate tax structure would reduce Louisiana’s current five tax brackets to just three brackets with the following rates:
- 3.5% on the first $ 50,000 of La’s taxable income.
- 5.5% on taxable income in La. Greater than $ 50,000 but not exceeding $ 150,000.
- 7.5% on all of La’s taxable income in excess of $ 150,000.
In addition, the legislation includes the following changes to the state business franchise tax:
- Extends the suspension of the first level of franchise tax for small businesses until July 1, 2023.
- Definitively eliminates the first tranche of the franchise tax and provides that no tax will be due on the first tranche of $ 300,000 of taxable capital for all taxpayers as of January 1, 2023
- Reduces rate on taxable capital in excess of $ 300,000 from 3% to 2.75%.
- Enacts a tax cut trigger that will automatically reduce the franchise tax rate if certain tax revenue growth targets are met.
Voters will see the following constitutional amendment question on the ballot for the October 9 election, which will also include the open mayoral primaries for New Orleans residents:
“Do you support an amendment to lower the maximum allowable rate of personal income tax and to allow the legislature to provide by law a deduction for federal income taxes paid?” “
THE MORNING BULLETIN