13 things to know about Louisiana’s Constitutional Amendment 2: Proposed income tax changes

Louisiana voters will decide whether to make significant changes to the state’s income tax rates and deductions in the election scheduled for Nov. 13.

If passed, Constitutional Amendment #2 on Louisiana’s ballot would lower income tax rates in exchange for lifting state income tax deductions that nearly every person filing taxes uses. It would also reduce the state’s corporate franchise tax and possibly set the state up for further individual and business tax cuts in the future.

The proposal is complex. It involves four pieces of legislation approved by Louisiana lawmakers that will affect both personal and corporate tax bills.

Advocates for the amendment say it will simplify Louisiana’s complicated tax code and stabilize state revenue — all without making any drastic changes to the amount of tax money the state collects. Support for the amendment crosses political lines. Democratic Gov. John Bel Edwards and the Legislature’s conservative Republican leadership both support the package. Centrist public policy groups in Baton Rouge have been pushing for this type of change for years.

But advocates for low-and-moderate income people are skeptical of the proposal and are asking residents to vote it down. They say it does nothing to change Louisiana’s reliance on sales tax collections, which are more of a burden for people who are poor. They also worry it might lead to larger changes to the tax code. The amendment, if approved, would make it easier to lower income tax rates or eliminate them altogether, which would limit the amount of state money available for education, health care and other government services.

Louisiana’s four constitutional amendments are the only statewide items on the ballot this fall. While election day isn’t until Nov. 13, early voting starts Saturday and runs through Nov. 6 (though it is not available on Sunday).  

Here’s some of what you need to know about the proposal before you vote: 

If passed, Louisiana will take in about the same amount of tax revenue. 

Constitutional Amendment #2 is not supposed to result in an immediate tax cut or tax hike for the state overall, despite lowering income tax rates for both people and corporations. That income tax rate reduction is supposed to be offset by the elimination of the state’s federal income tax deduction, the elimination of almost all  excess itemized deductions and a reduction of the corporate franchise tax.  

“The aggregate fiscal effect of the bill is essentially revenue neutral,” said Greg Albrecht, the Legislature’s state economist, in his analysis of the package.  

Albrecht concludes that the tax package would result in a slight revenue reduction of $27.3 million annually starting in the 2024-2025 state fiscal cycle. But to put that in perspective, Louisiana’s annual budget was $43 billion this year. 

To the extent that there is a tax deduction, it benefits corporate tax filers. 

Still, the $27.3 million reduction in state tax revenue would mostly result from the cut to the corporate franchise tax, according to Albrecht. By the state’s 2024-2025 budget year, the overall reduction to personal income taxes is only expected to be $600,000 annually. This means that corporations — not personal income tax filers — are the primary beneficiaries of the modest tax cut that is expected.

State tax collections would stay mostly the same, but your tax bill might change.  

Even if state tax collections are supposed to remain even, that doesn’t mean individual tax filers won’t experience changes to their personal tax bills. In general, most household tax filers are expected to see their tax bills either stay the same or go down slightly.

On the corporate side, Albrecht expects smaller corporations that pay income tax or the corporate franchise tax to see a reduction in their state tax bill. Some larger corporations who pay income or corporate franchise taxes could see a tax increase, according to his analysis. 

Individuals who don’t use excess itemized deductions are more likely to see a tax cut.

If you don’t take advantage of excess itemized deductions, it is much more likely you will see a tax cut if Constitutional Amendment #2 passes, though there are exceptions to that rule, according to Albrecht’s analysis.

One such outlier is people who don’t take advantage of excess itemized deductions, but have very high incomes. Albrecht said households who report income of $900,000 or more — but don’t use excess itemized deductions — are more likely to see their income tax bills go up with this package. 

Individuals who claim excess itemized deductions are likely to see a tax hike. 

People across several tax brackets  who claim excess itemized deductions are more likely to see a tax hike if the tax package goes into effect, but this cohort is a fairly small percentage of Louisiana’s population. Only seven percent of state residents paying income taxes take advantage of excess itemized deductions.

Those who do, however, aren’t necessarily wealthy. Proponents for the tax package have implied that people who use excess itemized deductions tend to have larger incomes. Albrecht said that isn’t necessarily the case.

People who are claiming a lower or modest level of income also use excess itemized deductions — and may see their taxes increase as a result of the package, Albrecht said.

People who give a large amount to charity could see a tax hike. 

One group of taxpayers that is more likely to take advantage of excess itemized deductions is people who give large amounts of money to charity. Changes to the tax code would result in people who are very generous to charities paying more state income tax, said Daniel Erspamer, chief executive officer of the Pelican Institute, a conservative think tank based in Louisiana.

Erspamer, who supports the proposal, said this group of people is relatively small though, and not mainstream. 

People who have significant gambling losses could see a tax hike.

Folks who deduct gambling losses from their state income bills may also see a tax hike, Erspamer said. Louisiana tax code currently allows an individual to deduct gambling losses from their tax bill, so long as those losses don’t exceed the amount of his gambling winnings. Erspamer also said this is also a relatively small group of people. 

Income taxes would be permanently capped at a lower rate.

If it passes, the constitutional amendment will establish a new, lower ceiling for personal and corporate income tax rates.

The state constitution currently limits the highest personal income tax rate to 6 percent, but the amendment would lower that cap to a maximum of 4.75 percent. That means that in order to enact a personal income tax rate higher than 4.75 percent, state voters would have to approve another constitutional amendment. The Legislature could not raise the rate past 4.75 percent on its own.

The cap on the corporate tax rate would similarly move from 8 percent to 7.5 percent. 

It will be easier for Louisiana lawmakers to eliminate the income tax entirely.

Along with lowering the ceiling on income tax rates, the amendment would get rid of the floor for the income tax. Currently, anyone who pays personal income taxes must pay a rate of at least 2 percent. 

But this constitutional amendment would open the door to the Louisiana Legislature eliminating state income tax entirely in the future. 

It should be said that the current proposal under consideration does not eliminate the income tax. The lowest-income tax filers would still pay a 1.85 percent rate under the current tax package up for a vote this fall. But the constitutional amendment would make it easier to push through a bill to do away with the income tax in the future.

Business and personal taxes could automatically be cut further. 

The proposed tax package includes a “trigger” that would result in personal and business taxes being cut automatically if certain tax collection goals are met.

If tax collections soared such that the state’s reserves were flush and significant revenue growth took place, there is a provision in this tax package that would require income tax rates to automatically go down and the corporate franchise tax to be reduced or eliminated.

Advocates for low-and-moderate income people are particularly concerned about this proposal because it would prohibit the use of additional tax revenue for government services — instead of tax cuts — in the event of a huge surge in Louisiana’s economy. But Albrecht said the threshold for the additional tax cuts is quite high — unlikely to be met in most years. 

Supporters believe lowering tax rates will attract more business to Louisiana. 

One of the ultimate goals of the tax package is to improve Louisiana’s rating with national organizations who track tax policy — and hopefully to attract more business to the state.

Advocates for the Constitutional Amendment say Louisiana’s current income tax rates are some of the highest in the country — and discourage outside investors from coming to Louisiana. If the tax package passes, Louisiana’s new income tax rates will be some of the lowest in the South, making the state more appealing to outside companies, they have said. 

But opponents of the tax package question whether Louisiana should be overhauling its tax code in order to get a higher ranking with national tax organizations. They also wonder whether changing the income tax rate will be enough to attract new investment. Louisiana struggles in other areas — specifically with K-12 schools and higher education institutions — and that might be discouraging businesses from relocating to the state more than the tax structure, they said. 

The state would have more control over its revenue and tax collections. 

If the amendment passes, Louisiana would have more control over its tax collections in general. By eliminating the federal tax deduction from the state tax code, Louisiana would be breaking the link between federal tax policy and state tax collections.

In Louisiana, when federal taxes go up, the state tax revenue collections automatically go down because of the state’s federal tax deduction. And when federal taxes go down, state revenue collections automatically go up. 

Lawmakers say not having control over the state’s own tax collections is a problem. They don’t want to be linked to the federal tax code anymore. 

Opponents say the ballot language is misleading and confusing. 

Opponents of the tax package say the ballot language for Constitutional Amendment #2 implies that everyone will receive a tax cut if the amendment passes. As discussed above, some people and businesses are expected to see their taxes increase if the tax package is approved.

The ballot language makes mention of “allowing a federal income tax deduction” on top of lowering income tax rates, but doesn’t mention that the current proposal would eliminate two federal income tax deductions — not implement them. 

Additional resources on Constitutional Amendment #2:

For those who want more specifics on how each type of tax filer — single, widowed, married, head of household, etc.– will be affected by this tax proposal, you can read Albrecht’s granular analysis here. 

The Public Affairs Research Council has a comprehensive guide to all four constitutional amendments here. 

The Current in Lafayette hosted a forum about Constitutional Amendment #2 that you can watch here.