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Lawmakers aim to reduce income tax but toss out federal tax deductions

Updated: Apr. 13, 2021 at 6:53 PM CDT
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BATON ROUGE, La. (WAFB) - Out of touch with the times is what some at the Louisiana State Capitol are referring to when it comes to how our current state income tax system operates, particularly when it comes to federal income tax deductions.

“We are one of the last two states that still have a federal income tax deduction - us and Alabama,” said Sen. Bret Allain II, R-Franklin, on Tuesday, April 13, in a committee meeting.

The proposal is to take those who make $50,000 or more and reduce the individual income tax rate from 6% to 5%. But to balance those numbers out, lawmakers also want to get rid of deductions from the federal government. There is only one problem. Those deductions are written in our state’s constitution and in order to get rid of them, there would need to be an amendment.

“And that’s basically what this bill would do,” said Robert Travis Scott, president of Public Affairs Research Council. “And it needs to be removed from the constitution to allow the legislature the flexibility to do better tax policy.”

Because the federal income tax deductions fluctuate with each new administration in Washington, tax collectors in Louisiana never really know how much they’ll rake in with taxes every year. Sometimes, the state makes money and sometimes it is not so lucky. Sen. Allain referred to it as a rollercoaster.

“And then up after that and then back down again with Trump tax cuts, and if they go up again, we could potentially see a half a billion-dollar hole in our budget again,” Allain explained.

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Some who attended the meeting said when they look around at other states, Louisiana is behind the 8-ball, having not received the full benefit that other states have and that the time to act is now.

“This is your shot,” said Dawn McVea, senior director for NFIB. “If you don’t do it now, we’ll have to wait two years.”

“Bringing simplicity to the system will create thousands of jobs and an increase of about four to 6% in the gross domestic product or the total measure of economic activity in the state of Louisiana,” said Daniel Erspamer, chief executive officer at the Pelican Institute.

The bottom line is this bill would make it much easier for tax collectors to predict how much money in taxes the state will make each year but does not really do much for the actual taxpayer. But none of this is officially set-in-stone or been voted on. For now, it just remains a proposal up for discussion.

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