An effort at the recent legislative session to repeal the state’s personal income tax may not have been “much ado about nothing,” but it was more political posturing than a realistic undertaking.
The Louisiana state income tax is expected to bring in about $2.8 billion this year. Phaseout of the tax over a 10-year period would have eventually cost $5.4 billion a year by 2024.
None of that is peanuts, of course, but when compared with other states, the income tax isn’t the big, bad monster it’s often made out to be.
Louisiana is one of the top 10 best states for retirees, according to Kiplinger.com, the company that has been publishing the Kiplinger Letter for 85 years. We just made it to the No. 10 position, but a low income tax helped get us there.
Wyoming is in the No. 1 position, followed by Mississippi, Pennsylvania, Kentucky, Alabama, Georgia, Oklahoma, South Carolina and Delaware. Most of those are Southern states.
Seven of the 50 states don’t levy income taxes, and repeal advocates love to talk about how well they are doing. However, Wyoming is the only one of the seven that made Kiplinger’s top 10.
Wyoming made it because it collects hefty oil and mineral taxes. The state sales tax — like Louisiana’s — is 4 percent, but local counties can only levy up to an additional 1 percent sales tax.
The other states without income taxes are Alaska, Florida, Nevada, South Dakota, Texas and Washington. New Hampshire and Tennessee don’t tax wage income, but do tax interest and dividend income, according to Tax Foundation.
Tax isn’t high
The foundation reports that, for fiscal year 2009, the per capita income tax in Louisiana was $658. Only seven states that tax all income are lower, ranging from $586 in Michigan to $393 in Arizona.
Here is what Kiplinger.com said about how our state made it to the top 10 place for retirees:
“Louisiana offers a bayou full of tax breaks to retirees. Social Security and military, civil-service and state and local government pensions are exempt from state income taxes, plus up to $6,000 per person of pension and annuity income.
“Personal income tax rates are low, ranging from 2 to 6 percent. Property taxes are the lowest in the nation, according to the Tax Foundation, and assessments are based on 10 percent of the fair market value.
“But sales taxes can be steep. The statewide sales tax is 4 percent, but local parishes and jurisdictions within those parishes can add their own sales taxes. In New Orleans, the combined sales tax rate is 9 percent. But food and drugs are exempt from sales taxes throughout the Pelican State.”
Now, there is an area where legislators could give every citizen in Louisiana a hefty tax break. The Legislative Fiscal Office said 1 percent of the state’s 4-percent sales tax will bring in approximately $742 million in fiscal year 2011-12.
Repeal of a penny or more of the state sales tax would keep money in everyone’s pockets. Many citizens in Louisiana don’t benefit from repeal of income taxes because they pay little or no income taxes.
Kiplinger.com also compiled a list of the 10 states that it said “have earned a place on our ‘do not live here for your second act’ list …”
Louisiana’s highest income tax rate is 6 percent. Consider what the top rate is in the bottom 10 states for retirees.
Vermont made No. 1 on the “don’t retire there” list, and its top state income tax rate is 8.95 percent. Here are the top rates for the other nine in their order of finish:
Minnesota, 7.85 percent; Nebraska, 6.84 percent; Oregon, 11 percent; California, 9.55 percent; Maine 8.5 percent; Iowa, 8.98 percent; Wisconsin, 7.75 percent; New Jersey, 8.97 percent; and Connecticut, 6.7 percent.
State Sen. Rob Marionneaux, D-Livonia, and Rep. Hunter Greene, R-Baton Rouge, sponsored income tax repeal bills at the recent session. Marionneaux’s received the most debate.
When Marionneaux was asked how he would replace the revenues lost by repealing the income tax, he said the state could repeal many of the $7.1 billion in tax exemptions and credits given every year.
The tax breaks need to be evaluated because a number are probably no longer productive or necessary. However, legislators continued to extend or give more tax exemptions during the same session.
Why? Because some tax exemptions produce jobs and other income for Louisiana citizens. Gov. Bobby Jindal has been crisscrossing the state signing tax credit legislation passed at the last session.
Do it right
Tax reform is a complicated process. Former Gov. Buddy Roemer tried it, and it helped kill his re-election chances. A number of factors caused its defeat, but the lack of government credibility and the fear of change were high on the list.
However, that doesn’t mean tax reform shouldn’t be tried again, but only after serious discussions of the pros and cons. None of that happened before the Marionneaux and Greene bills surfaced.
Every taxpayer would be delighted to see an end to the state income tax, but there may be a better way to improve the lives of Louisiana citizens. If not, the Legislature can revisit the issue, but not before doing its homework.
Jim Beam, the retired editor of the Lake Charles American Press, has covered people and politics for more than five decades. Contact him at 494-4025 or [email protected].