State Rep. Richard Nelson, R-Mandeville, is proposing to eliminate Louisiana’s income tax. (Photo credit: Wes Muller/Louisiana Illuminator)
The Louisiana House Ways and Means Committee met Tuesday to begin study of a proposal to eliminate the state’s individual and corporate income taxes. During the 2022 regular session, the legislature passed House Resolution 178, sponsored by Rep. Richard Nelson, R-Mandeville, to study the state’s tax structure and recommend whether state income taxes should be eliminated and how the state’s many tax exemptions and credits could be reformed.
At Tuesday’s hearing, Nelson told the committee the state’s complicated tax structure is a reason why it continues to lose population. Louisiana has not added a congressional seat since 1910 and instead loses an average of one district every 20 years, he noted.
“At the end of the day, we’re a banana republic that’s run out of bananas,” Nelson said.
Nelson pointed out that Florida and Texas have both experienced population growth. “What do they have in common?” he asked his colleagues. “They have no income tax.”
The Census Bureau and Internal Revenue Service track U.S. population shifts, also called interstate migration. Three of the 10 states with the highest inbound migration do not have state income taxes, a statistic cited by conservative think-tanks such as the Tax Foundation. Seven of those states — including the top four: Idaho, Utah, Montana and Arizona — do collect income taxes.
Texas, Florida and Tennessee have no state income taxes and all experienced net inbound migration, with Texas ranking second among southern states with a growth of 1.3%. So did several states that do levy income taxes, including Alabama, Arkansas, Georgia, North Carolina, Oklahoma and South Carolina. According to the Tax Foundation, South Carolina had the highest growth, 1.4%, among the southern states.
The progressive Center on Budget and Policy Priorities points out that over the past two decades, more households moved from Florida, which doesn’t collect income taxes, to Georgia, North Carolina and nine other states with income taxes.
Even with the highest income taxes of any Sun Belt state, North Carolina had more than double the net inbound migration than that of its no-income tax neighbor Tennessee, according to the Center on Budget and Policy Priorities.
Most of Louisiana’s outbound migration has gone to Texas, Mississippi, Florida, California and Georgia, in that order. It’s a trend that has held since at least 2016, according to IRS data. In the 2015-2016 tax year, Louisiana gained 20 households from Mississippi.
“You can just see it anecdotally,” Nelson said in a post-meeting interview. “Just sitting in business lounges across the country and in airports or whatever, you can hear somebody say, ‘Hey, I’m moving to Texas. You know, they don’t have any income taxes.’”
The Tax Foundation acknowledges that people move for many reasons and that Census data cannot tell why each person moved, but says “there is no denying a very strong correlation between low-tax, low-cost states and population growth.”
In a phone interview, Jan Moller, director of the nonpartisan Louisiana Budget Project, pointed out that correlation is not the same as causation.
“The reasons people move are as individual as the people who move,” Moller said. “It can be for jobs, it can be for family, it can be for any myriad of reasons, but it is very rarely for tax purposes.”
Moller said Louisiana’s individual income tax is expected to generate about $4.3 billion in revenue per fiscal year.
“You’d have to find a way to replace $4.3 billion in revenue,” Moller said. “If Richard Nelson wants to tell me how to do that, I’d love to listen.”
Nelson said he would push to repeal various tax exemptions and credits that Louisiana offers to businesses and residents to make up for the lost income tax revenue. He also proposes to shift some of the state’s spending to parishes and local governments, saying many of the no-income tax states handle a lot of their problems at the local level.
“The same tax dollar, if you spend it locally, it goes to fix your roads, your schools, your police,” Nelson said. “I think it just goes a lot farther that way because it doesn’t go through this bureaucratic process of state government. It stays local, it’s spent local, it’s raised local.”
Moller said the last time the legislature considered eliminating state income taxes was in 2013 under a proposal then-Gov. Bobby Jindal backed.
“This idea had its day in court in 2013, and it got laughed out of the legislature,” Moller said.
Deborah Vivien, chief economist of the Legislative Fiscal Office, cautioned lawmakers on the committee about making more large wholesale changes to tax policy in back-to-back years.
She pointed out the state just enacted wholesale tax reforms through a constitutional amendment voters approved in November. The amendment was part of a tax swap package that lowered income tax rates and repealed the ability for taxpayers to deduct their federal tax bills on their state tax returns.
Vivien cautioned lawmakers that any fiscal forecasts on big tax proposals are going to be based on a lot of uncertainty.
“We’ve already made the big reform changes, but we don’t know how they’re ending up,” Vivien said.
The state’s current level of income tax revenue is abnormally high largely thanks to an influx of federal funding, labor shortages and inflation, she said. The state experienced a similar increase after Hurricane Katrina, followed by a drop larger than what anyone expected.
“We’re kind of in a similar situation now,” Vivien said. “We’re seeing really high revenue. We know it’s going to come down, so I just caution you, if you’re tempted to cut [taxes]… just keep in mind that we have a far way to fall at this point and it can fall much quicker than you think.”
Ways and Means Chairman Rep. Stuart Bishop said the committee will meet about every other week to study the issue until the 2023 regular session.
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