By Doug Strickel
The Louisiana Legislature recently wrapped up a special session on tax and financial reform. I am not sure how many people paid attention to the work going on in Baton Rouge, but everyone should.
Looking back at the results of this special session, one can ask whether it was a real step forward or just rearranging the deck chairs. If we were to dig into the facts of the State’s financial condition, we would understand the following:
- Louisiana has the highest per capita government spending in the Southern US. Thus, the Louisiana state government is very large for a state this size.
- The income sources are federal funding and state-driven taxes imposed on businesses and citizens. Federal funding could be reduced significantly once the Federal Government enacts budgetary spending initiatives.
- Louisiana is a member of a declining number of states still collecting income taxes from citizens. Louisiana also has the highest sales tax rate in the country.
- Louisiana has a declining population and struggles to attract new industry given the tax situation and insurance rates.
Governor Landry was attempting to address several of these concerns with the special session that just concluded. In the end, only a few of the proposals that Landry wanted were approved by the Legislature. The key changes are a new income tax flat rate of 3% (compared to 4.5% for those making $50,000 or more) and a reduction in the corporate tax rate from 7.5% to 5.5%. To compensate for the reduction in income tax revenue, the legislature increased sales tax even more!
There was no discussion of spending reduction, either from the Governor or the Legislature. It appears that the political environment is still strong in that no one wants to talk about spending reductions.
So, here’s the primary impact of the special session:
- The corporate tax reduction should be enough to make Louisiana more competitive for new industry from an income tax perspective. It’s unclear if sales tax and high insurance rates will override the income tax change to drive real industrial growth. Only time will tell.
- The flat income tax rate will help individuals and simply the overall income tax structure, but again, sales taxes are going up. People will be impacted differently.
- No changes in spending and no discussion on insurance. If you haven’t lived outside of Louisiana, you don’t realize how high the insurance rates (auto, home, individually purchased health care, etc.) are for Louisiana residents and businesses.
The only way for these changes to be a step in the right direction is for there to be more meaningful steps taken in 2025. If these changes are it, then it was just rearranging chairs on the deck. Here are some questions we need to be asking going into 2025:
- Do we have a state government that is willing to reduce spending to allow for tax reduction in total? Are they willing to be leaders and not just politicians? Leaders see things before others see them and act on behalf of what’s best for the people regardless of how popular those decisions may be.
- Will the governor and legislature make another move to eliminate state income tax for good? The cost of administration would be a significant savings with a focus on other tax sources like other states being the answer.
- Will the governor and legislature address the insurance issues in Louisiana? Will we get real tort reform like other states, or will we continue to allow trial/personal injury lawyers and insurance companies to put the burden back on the people with high rates?
Time will tell if we have real leadership or if Louisiana politics continue. Authentic leaders do what’s best for their people and not just what’s easy. Time will tell!
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