How will Louisiana taxpayers be impacted if the so-called “tax swap” package becomes reality?

Voters have their say in October
Photo of $100 bills.
Photo of $100 bills.(Source: WVUE)
Updated: Jun. 11, 2021 at 6:36 PM CDT
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NEW ORLEANS (WVUE) - A veteran certified public accountant and the leader of a budget watchdog say the so-called *tax swap* proposals that voters will get to weigh in on in the fall will not result in a big drop in most people’s state income tax bill.

Before ending the 2021 regular legislative session on Thursday state lawmakers gave final approval to an income tax reform package and voters will get to decide the constitutional amendment portion of it.

The legislation lowers tax rates for individuals and the constitutional amendment that will appear on the October ballot would enshrine in the constitution a maximum cap for the income tax rate.

In return, the state income tax deductions individuals and married couples receive for federal income taxes paid would be eliminated.

Richard Tullier is a CPA with the firm, Wegmann Dazet & Company.

“What it’s going to do for most people, they’re going to see maybe a little dip in their tax bill, it won’t be dramatic, but it will be a dip in their tax bill. The people that it’s going to affect the most will be people who have large federal tax burdens,” Tullier.

Jan Moller is the Executive Director of the Louisiana Budget Project. He has concerns about the proposed tax law changes.

“Most citizens are not going to see any significant change in their overall state income bill and that frankly is one of the two reasons that we had a problem with this, is that it doesn’t address the fundamental problem with our tax structure in Louisiana which is that low-income households pay state and local taxes at a higher rate than people at the very top of the income scale and that’s because in Louisiana we are extremely high on sales taxes which hit low and moderate-income families the hardest and we are comparatively low on state income taxes,” Moller said.

On the final day of the legislative session before the vote on the income reform bills, Sen. Bret Allain, R-Franklin, discussed how the tax rates would change.

“The new rates will be 1.85 % for the lowest bracket, down from 2%; 3.5 for the mid-range bracket, down from 4 and 4.25 for the upper bracket down from 6%,” Allain told his colleagues.

And the proposed constitutional amendment would cap the personal income tax rate at 4.75 %.

“A ceiling of 4.75 is great except if it allows them to take away more deductions you might be right back where you started,” Tullier stated. “For people who, you know, two spouses work a job, maybe make between $60,000 and $100,000 a year, they’re not going to see a huge difference because the takeaway from that federal income tax deduction is going to be offset by the tax rate change and that’s their goal.

Moller and Tullier agree that Louisiana is an outlier, in terms of the federal income taxes paid deduction, on the state’s tax form.

“Absolutely, we are an outlier in that, and the federal income tax deduction is bad tax policy and that is something people across the political spectrum agree,” Moller said.

“Most states don’t have a federal income tax deduction because they start with regular income, and you recognize your income just like you would on a federal return. Louisiana is one of the outliers that still relies on starting at the federal, what they call Adjusted Gross Income Level rather than just traditional gross income, so this will bring Louisiana more in line with other states,” said Tullier.

Moller is also concerned that some parts of the tax reform package would trigger tax cuts that would hurt education and other state spending.

“They added what we call trigger language which says that if these bill pass and they go on the ballot in October and tax revenue comes in better than expected then it would automatically trigger additional income tax cuts and so what that means is that tax cuts would kind of move to the top of the priority list in future years rather than priorities like teacher pay, early childhood education, higher education, health care, all the other things that our politicians say are priorities would take a back seat to additional tax cuts under this trigger language,” he said.

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