A complicated tax swap, backed by the legislature, passed an important step on Monday when it was approved by the State House Ways and Means Committee.
House Bills 274 and 278 would eliminate a popular tax break that would allow individuals to deduct their federal tax payment from their state income tax return while lowering income tax rates. Most people would pay roughly the same amount of tax, and the state would collect roughly the same amount of revenue, said the bill sponsors, Rep. Stuart Bishop, R-Lafayette, who works with Senator Bret Allain, R-Franklin.
Ways and Means also approved another proposal to remove federal tax withholding and introduce a flat rate of 4% for taxable income over $ 12,500 for individuals and $ 25,000 for joint applicants. House Bills 171 and 207 are sponsored by Rep. Jerome Zeringue, the Houma Republican who chairs the House Funds Committee.
However, the members of the committee opposed any other measure that would have levied taxes on those earning at least $ 500,000 a year. House Bill 529 is sponsored by State Representative Mandie Landry, D-New Orleans.
Amid the competing proposals, Rep. Buddy Mincey, R-Denham Springs, asked for advice on which was the best.
The one who “bears the names of two chairmen,” said Bishop.
He was referring to the bills he and Allain sponsored, and his answer went for Zeringue’s efforts too. Bishop chairs Ways and Means, while Allain chairs the Senate Income and Taxes Tax Writing Committee. Zeringue is the chairman of the budget committee that creates the budget version of the house.
Landry is now a freshman Democrat who frequently challenges the Republican leadership. Plus, Republicans have consistently opposed income tax increases for people with higher incomes in recent years.
The actions of the Bishop and Zeringue are now advancing into the floor of the house. An Allain bill, which is an addition to Bishop’s bills, is due to be heard in the Senate on Monday.
To become law, all bills must pass both houses, without a veto of Governor John Bel Edwards, and get voter approval in a statewide referendum in either October 2021 or October 2022.
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Efforts to conduct the tax swap are backed by left, center, and right outside groups, and they are backed by Edwards as long as they are revenue neutral.
Robert Travis Scott, president of the centrist Public Affairs Research Council, a Baton Rouge think tank, brought back a pile of previous studies by experts from 2013. Everyone recommended that the legislature remove the federal tax deduction and offset it by lowering tax rates.
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He and Allain said that Louisiana has a higher top tax rate than neighboring states and that this is preventing investors from coming to Louisiana.
Under the Bishop-Allain Bill, the tax rate would drop from 6% to 4.25% of net income over $ 50,000, the tax rate would drop from 4% to 3.51% of net income between $ 12,500 and $ 50,000, and the tax rate would drop from 2% 1.85% net income the first $ 12,500 of income.
Allain said tax rates in the top bracket would drop more because the loss of federal income tax deductions and other types of tax deductions – but not those on medical expenses – are more borne by upper-income taxpayers.
Allain said a primary reason for pushing the bill is because outside groups like The Tax Foundation – rank Louisiana low on their state-to-state rankings. He found Louisiana ranked 42nd on the Foundation’s State Tax Business Climate Index.
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Allain failed to notice that Louisiana actually tops the list for corporate (35) and individual income taxes (32) in the mid-1930s, and that Louisiana ranks 49th in sales taxes – both due to its average local and 9.52% combined local taxes, state sales tax and a variety of tax exemptions for all types of transactions.
In a post-hearing interview, Allain said the tax swap he proposed was a good first step to clean up the state’s tax laws.
The Bishop Allain Bill was also supported by Dawn McVea, State Director of the National Federation of Independent Business. She said 70-80% of her members file their state taxes as individuals.
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Jan Moller, director of the left-wing Louisiana Budget Project, praised the tax simplification bill. But he said a better bill would be one that brings in more revenue and deals with a tax system that would make low-income people pay a higher percentage of their income in taxes than the rich.
Individuals earning less than $ 17,100 annually pay 11.9% of their income in the form of income taxes, property taxes, and sales and excise taxes combined, while those earning more than $ 475,000 pay just 6.2%.
A move to remove the federal corporate tax deduction while lowering the highest corporate tax rate was passed by the Ways and Means Committee last week.