At a glance
Constitutional Amendment 2 creates sweeping changes to the state’s tax code. A vote in favor will lower the maximum state income tax rate and remove the state’s largest tax deduction, triggering statutory reforms for individual and corporate income and franchise taxes.
Background
Louisiana currently allows taxpayers to deduct the federal income taxes they pay from the computation of their state income taxes; a deduction allowed by one other state in the country – Alabama. As a result, when federal income taxes increase, Louisiana collects less in state income taxes. When federal income taxes decrease, state income tax collections increase. The financial uncertainty that the state faces is completely beyond its control and makes year-over-year budget projections exceedingly difficult. By removing federal deductibility and lowering state taxes, Louisiana would have one of the lowest tax rates in the country, and 90% of Louisianans would pay less in taxes. Three statutory reforms are activated by a yes vote:
- Act 395 eliminates the federal tax deduction for state individual income tax filers, offset by lowering individual income tax rates in each bracket.
- Act 396 eliminates the federal income tax deduction for corporate income tax, lowers corporate tax rates, and reduces the number of brackets.
- Act 389 lowers corporate franchise tax rates levied on a company’s retained earnings and investment income.
In the end, the resulting changes would:
- Remove current individual income tax brackets from the State Constitution, allowing the Legislature to lower rates.
- Lower rates in the three personal income tax brackets, lowering the highest tax bracket from 6% to 4.25%
- Reduce the number of corporate tax brackets from five to three, capping the highest tax bracket at 7.5%
- Eliminate the Corporate Franchise Tax on the first $300,000 of taxable capital, and lower the tax from $3 to $2.75 per thousand on capital greater than $300,000
For years, advocates have argued for the necessity of eliminating deductions and lowering the effective tax rate on citizens. The passage of Constitutional Amendment 2 (along with the enactment of its companion legislation) would result in a simplified tax system, more predictable revenues for state government, and lower tax rates, thereby encouraging in-migration, job creation, and increased business investment.
What the ballot says
Do you support an amendment to lower the maximum allowable rate of individual income tax and to authorize the Legislature to provide by law for a deduction for federal income taxes paid?
BRAC’s take
BRAC is in support of Constitutional Amendment 2 and encourages voters to vote yes. Read BRAC’s full position here.
Brace B. “Trey” Godfrey, III
As the senior vice president of policy, Trey drives regional and state-level initiatives to create a more competitive region for business growth and talent development, particularly through the organization’s public policy and government affairs activity.