The new Landry Administration has talked about many different changes in state taxation and spending practices to kick-start the sickly Louisiana economy that the new governor inherited from Governor John Bel Edwards.

Unfortunately, Louisiana Revenue Secretary Richard Nelson did not get the “Tax Reform” message.

Tax increases, through revocation of tax exemptions and repeal of tax revenue dedications, are inexplicably at the top of the Secretary’s new tax proposals. Rightfully, increasing taxes is not supported by the new tax-reform-oriented Louisiana legislature.  Governor Landry and our new legislature must recognize the obvious: Louisiana’s overall tax burden is almost a 40% higher tax burden over the tax burden on personal income taxpayers in the economically vibrant state of Florida. Louisiana’s tax burden also greatly exceeds the tax burden of the people of the other southern powerhouse states of Texas, Tennessee and South Carolina.

All the economically vibrant States in the south are growing from the repeal of personal income taxes.  Plain and simple.

Back to Secretary Nelson’s historic misstep in proposing new taxes and higher taxes.

The tax increases proposed by Secretary Nelson are an intentional expansion of state government and the expense of Louisiana’s shrinking economy.  Secretary Nelson is proposing new taxation on the income charged for professional services, and consulting services throughout the economy in Louisiana.

The good news is that is “New Nelson Income Taxes” on personal service fees appears to have zero support anywhere in Louisiana.  Nelson’s increased taxing plan is not a stimulus to our lethargic economy, but offers up more poison to our overtaxed economy in Louisiana.

The revitalization of the Louisiana economy is simple: quick repeal of our personal income taxes.  Election 2023 confirmed that Louisiana’s voters seek to repeal personal income taxes like Florida, Texas, Tennessee and South Carolina.  Louisiana’s new administration, and our new reform legislature, must keep their election promise of full repeal of personal income taxes and the reduction of Louisiana’s sales taxes.

The repeals of these two Louisiana taxes would be a historic supercharger to Louisiana’s economy.  Louisiana’s voters know that they were promised by Governor Landry and the new legislators, that they would enact these tax cuts to cure Louisiana’s “out migration” and economic stagnation.

The question before Governor Landry and the legislature is, do they have the strength of character to honor their promises?  The voters believe in the economic value of the repeal of personal income taxes in Louisiana, like Texas, Florida and Tennessee. Equally, the voters believe in the economic relief they will receive with the reduction of Louisiana’s sales taxes with the sunset of our temporary 0.45% sales tax. These two tax repeals were widely discussed and supported by the vast majority of the voters who elected Governor Landry in the primary election of October 2023.

So let’s remind ourselves of why the repeal of the personal income tax in Louisiana is the best available strategic plan that can jump-start and supercharge the Louisiana economy, and bring back our lost businesses and our scattered Louisiana families.

Government “Fear” Of Lost Revenue Is Unjustified

The Louisiana voters know what Louisiana needs to reinvigorate the Louisiana economy.  More household income and less government taxation of personal income will make Louisiana fiscally competitive across the southern U.S.

The “fear” of our political class is that state tax revenues will decrease.  However, any reduction of revenue to State government has not been expertly calculated by state government. For example, Representative Neil Riser’s Bill 844 introduced in the Regular Session of 2024 includes a primitive calculation of the possible losses of state revenue, if the personal income tax in Louisiana was repealed effective January 1, 2026.  This primitive calculation of atate revenue loss is contained in the “Fiscal Note” that accompanies HB 844.

The state’s estimated revenue loss (direct and indirect) in the Fiscal Note does not include any consideration of the exponential growth that the personal income tax cut will have on Louisiana’s economy.  The Fiscal Note estimates that the state would lose approximately $4.70 billion in tax revenue each tax year. The Fiscal Note’s author just assumes that the personal income earned by Louisiana’s workers heretofore which is then taken by the state as a tax (i.e. the $4.7 billion annually), will just disappear out of the Louisiana economy like steam out of a Baton Rouge smokestack.

That isn’t how economics works at all.

Equally, the intentional omission of all the positive effect on the Louisiana economy and our state revenues makes the Fiscal Note even more unreliable to decision makers planning for the transition.

Fortunately, the economic omissions and unreliability of the Fiscal Note is equally recognized by its author.  The Fiscal Note author warns that:  “The precise timing of likely revenue impacts is subject o significant uncertainty, . . . .” HB 844, Fiscal Note; dated April 12, 2024. Ironically, the Fiscal Note conclusions would not even be admissible in a Court of law, because its simplistic  methodologies do not meet established professional standards for calculating real economic impact from a repealed tax.

What is most knowable is the grand economic success that has followed every state following its repeal of personal income taxes.   Looking to the positive results in other states, four economic benefits are self-evident:  (1) the growth in sales tax revenue that will occur when the retained tax money is spent by the taxpayer;  (2) the increased profitability of Louisiana businesses who deploy these retaining tax funds as working capital;  (3) the increased personal wealth of Louisiana’s workers, employees and business owners who retain their tax funds; and (4) the accompanying growth in population that will occur in response to Louisiana’s repeal of this tax barrier to population retention and growth.

These substantial economic benefits arising from this tax repeal will transform Louisiana into one of the economic leaders in the U.S., and in the southern region.

Fortunately, the Governor and the new Legislators have seventeen months to manage the State of Louisiana’s budget and activities, to welcome home this new reduced tax burden, to usher in Louisiana’s new competitive tax position to reverse our present economic stagnation and reverse our present population “out migration.”

Benefit Or Tax Repeal to Louisiana Workers and Families

The present economic stagnation and ongoing population losses in Louisiana have been the direct result of our excessive tax burden, which compares very unfavorably to most of the other southern States.  Additionally, on top of the heavy Louisiana tax burden, Louisiana’s remaining workers are burdened by the national inflation of prices which all states have experienced for the last four years.

It is undisputed that the economic burden of national compounding inflation for the last four years has increased core family cost of living by over 20%.  What families bought for $100 in 2020 now costs $120 or more. Louisiana’s workers are desperate for such a pay raise.

Remember again, the national inflation has resulted in over 60% (actually more) of the working families in Louisiana struggling while living “pay check to pay check.”  This statistic means that more than 60% of Louisiana’s working families’ income “. . . barely covers essential living expenses like housing, utilities, groceries and transportation.”

Now, when Louisiana repeals its personal income taxes beginning 2026, there will be AN IMMEDIATE PAY RAISE for every worker in Louisiana on top of their own wage growth.  With Louisiana’s income tax rates presently being tiered, most employees and independent workers will receive an immediate 3.5% to 4.25% pay raise.  That “pay raise through tax cut” will be modern manna from heaven in Louisiana.  This tax-manna will nourish the new Louisiana economy, which will grow prosperity here, and return of our many family members who were driven out of Louisiana in the last decade.

Benefit Of Tax Repeal to Louisiana Businesses

The reason that a substantial tax cut has such a super-charged, compounding economic effect is that most of our Louisiana businesses rely on Louisiana customers.  With the tax benefit going both to the business owner and to the Louisiana customers, both will  IMMEDIATELY benefit from their newly retained income.

Each taxpayer will receive a 3% to 5% pay raise.  And that retained income will be spent to buy Louisiana products and services chosen by Louisiana customers.  The local businesses will immediately see more business revenue, and more business profitability.

The Reliable Economic Multiplier From Tax Cuts

It is a predictable, unavoidable, economic benefit to any economy when government cuts the tax burden in that jurisdiction.  The return of the earned income to the working earners always has the super-positive compounding multiplier effect.  The multiplier effect immediately begins in the jurisdiction released from the tax burden.

Our voters, legislators and Governor all see the prosperity of our neighboring States with no personal income taxes.  Our neighboring States who have abolished personal income taxes, confirm by their own exponential growth, that personal income tax cuts supercharge the cutting State’s economy.

Implement the tax cut now, and Louisiana’s economy will explode both in the tax year of the cut, as well as the following years.

Further, compounding growth, year after year will follow the tax repeal year because the elimination of the personal income tax attracts new capital, new high income earners, new skilled workers and new entrepreneurs who are ready to exit the many stagnant blue states with high personal income taxes.

For example, in the tax year of 2022, the number of people in Louisiana who filed federal income tax returns showing $200,000 or more annual income shrunk (in absolute numbers) by -396.  Stated differently, there were almost 400 fewer taxpayers in Louisiana in 2022 making +$200,000 that year, than the year before.

By comparison with the regional States with no personal income tax, the growth of high income earners was staggering.

The $200,000+ income earners grew as follows: grew by +27,567 taxpayers in Florida;  grew by +9,008 in Texas;  grew by +3,917 in Tennessee; and grew by +4,510 in South Carolina.

This type of growth of high income earners injects new spending, new investment and new economic transactions.  Examples of the beneficiaries of the new spending are our existing restaurants, retail outlets, medical clinics, car dealerships, accountants, our great entertainment industry, and our housing and construction industry.  The migration of high earners out of high tax states into states with no personal income taxes is unavoidable and undeniable.

A Competitive Louisiana Brings Louisiana’s Children and Businesses Back

It is undeniable that the repeal of personal income taxes has proven to be the “game changer” in stimulating “in migration” to Texas, Tennessee, Florida and South Carolina.  Twenty-first century economics shows that when a State repeals its personal income tax, the State gets “in migration” of capital, jobs, high income earners, and increase prosperity.  Strategically, Louisiana’s efforts to supercharge our economy and reverse “out migration,” with the repeal of personal income tax, will work.  With these two changes, Louisiana becomes the best southern State for “in migration” from the northern and Blue States that are losing population to the South.

Louisiana’s advantage is low property taxes.  With Louisiana’s property tax rates well below the average property tax rates in Texas, Tennessee, Florida and South Carolina.  The Tax Foundation’s calculation of average property tax rates in Louisiana and these competing States, applied to the median priced residential home in each State, has Louisiana’s average property tax rate at 0.51% of value.  In Texas, their property tax rate is 1.60%.  In Florida, their property tax rate is 0.86%.  In Tennessee, their property tax rate is 0.63%.  And, in South Carolina their property tax rate is 0.53%.  Louisiana has the lowest property tax rate compared to any of the competitive States in the South.

Strategically, with the repeal of personal income tax in Louisiana, Louisiana becomes competitive nationally for “in migration” on the income tax level.  And, with the 0.43% sales tax end at the beginning of the 2025-2026 State fiscal year, Louisiana becomes competitive nationally as to the sales tax level.

With these two tax reductions, Louisiana’s heavy tax burden will adjust downward to confirm Louisiana’s very competitive state tax reductions.  With these two tax reductions, there truly will be economic manna falling on Louisiana’s working families each day from the influx of economic prosperity.  Now, it will be Louisiana’s time to shine.

 

Paul L. Hurd, President

Louisiana Excellence, Inc., Contact paul@louisianaexcel.org

A non-profit dedicated to Louisiana Prosperity through a lower tax burdens.

Rev. July 19, 2024