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The changes Louisiana lawmakers made to state tax policy last fall will reduce the overall burden on most households by double-digits compared with prior sales and income tax rates, according to a nonpartisan fiscal impact study.[/b]

Reset Louisiana, a collaboration between the Leaders for a Better Louisiana and the Public Affairs Research Council of Louisiana, calls the combined impact of the tax changes “slightly less progressive” than the system in place before but still “modestly progressive overall.”

The groups hired former state economist Greg Albrecht to calculate the impact of new tax rates the legislature approved during last November’s fiscal policy special session. He had previously analyzed a tax proposal Gov. Jeff Landry offered to lawmakers, who chose to dial back some of its key components.

In the end, lawmakers placed a flat 3% income tax on all households, regardless of income, effective Jan. 1. It replaced a tiered tax bracket structure that ranged from 1.85% for income up to $12,500, 3.5% for income between $12,500 and $50,000 and 4.25% for all income above $50,000. For middle- and upper-income households, the change will result in a lower marginal tax rate, according to Albrecht’s analysis. Income taxes have effectively been eliminated for lower-income households.

The Reset analysis also found that while income tax reductions increase as income climbs, the percentage of tax liability reduction grows for lower-income filers.

“In that sense, the new changes to the income tax appear to increase the progressivity of the state income tax compared to the prior system,” the Reset report said.

But in actual dollars, more than half of the total income tax reduction – about 52% according to Albrecht – will go to filers with income in the state’s top 10 percentile because they tend to pay a larger dollar amount in income taxes. The adjusted annual gross income of households in that tier make $150,000 or more.

The remaining 90% of households with adjusted gross income below that threshold will see about 48% of the tax cuts.

Louisiana also updated its sales tax in November, increasing the rate from 4.45% to 5% at the start of this year through the end of 2030. Lawmakers also applied the state sales tax to digital products such as streamlining services, cable televisions subscriptions, satellite entertainment and computer software. An additional 5% sales tax was added to cable and satellite TV.

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When the income and sales tax changes are combined, most Louisiana households should expect an overall drop in tax liability, according to Reset’s calculations. Any increase in sales taxes is likely to be offset with a decrease in income taxes.

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Households with income between $50,000 and $200,000 will see their sales and income taxes decrease from 13% to 19%. Those making more than $200,000, a bracket with fewer than 100,000 taxpayers in Louisiana, should expect a 20% reduction.

A slight increase in taxes, less than $50 a year, is anticipated for those making less than $10,000, mainly because they don’t make enough money to see a benefit from the income tax changes and will pay more in sales taxes.

LINK

While I know many would advocate eliminating state income tax to be more competitive with Texas and soon to be Mississippi, looks like this at least could be better for Louisiana taxpayers than the prior model. I’d consider this an overall positive for Gov Landry and the Legislature in getting these changes done.