BATON ROUGE — Louisiana lawmakers recently wrapped up a 13-day special session that brought significant changes to the state’s tax policies. Among the most impactful decisions were a hike in the state sales tax and the introduction of a flat income tax rate.
While these changes aim to generate revenue, experts believe they may disproportionately affect the state’s lower-income residents, who are already struggling to make ends meet.
To break down these changes and their potential consequences, UWK spoke with Del Wright, a Vinson & Elkins Endowed Professor of Law at LSU, whose expertise includes tax policy, business, finance, and cryptocurrency. Wright provided insights into how these tax adjustments could shape Louisiana’s future.
State sales tax increase
Starting January 1, 2025, the state sales tax will rise from 4.45% to 5%. The rate will remain at 5% for five years before dropping slightly to 4.75% in 2031. Louisiana already has one of the highest sales tax rates in the country, and this increase is expected to hit lower-income families the hardest.
“The brunt of the pain from sales taxes falls on lower-income citizens because they spend more of their income on necessities,” Wright explained. “Because such a greater portion of your income has to go to buying things, a sales tax increase is going to hurt (lower income people) more than it will hurt wealthy people.”
Wright also noted that while higher sales taxes often drive shoppers to areas with lower rates, that’s less feasible for Baton Rouge-area residents. “Nobody’s driving to Mississippi or Texas for groceries,” he said, pointing to the limited nearby alternatives.
The higher sales tax will also extend to digital goods, including streaming services. While the increase won’t directly contribute to inflation, Wright says that residents will still feel the pinch as their everyday expenses rise.
Flat income tax rate explanation
Another major change is the elimination of Louisiana’s graduated income tax brackets. Currently, residents pay rates of 1.85%, 3.5%, and 4.25% depending on their income level. Starting next year, a flat 3% rate will replace these brackets.
Wright explained that while middle- and high-income earners will see their taxes decrease, low-income taxpayers will shoulder more of the burden.
“Those folks are going to see a tax increase, while everybody else is going to see a tax decrease,” he said.
Combined with the sales tax hike, these changes are likely to deepen the financial challenges for Louisiana’s most vulnerable residents.
Vehicle sales tax funds
Another adjustment involves reallocating vehicle sales tax revenue. Previously earmarked for infrastructure projects like a new Mississippi River bridge and I-49 expansions, these funds will now support services such as higher education and healthcare.
Corporate tax adjustments
The session also brought significant changes for businesses. The state’s corporate franchise tax was eliminated, and the corporate income tax rate dropped from 7.5% to 5.5%. Wright suggested this could attract more businesses to Louisiana but raised concerns about the potential loss of revenue. He also pointed to neighboring Texas which does not have a corporate income tax.
The tax has been used to build up Louisiana’s reserves and there is no replacement for it, according to the Louisiana Illuminator.
Tax vote in March
Gov. Jeff Landry’s high-minded goal of simplifying Louisiana’s complicated tax structure and imposing more fairness on the state tax system also wasn’t achieved. State lawmakers resisted the governor’s efforts to eliminate expensive state tax breaks that favor certain industries.
They also refused to significantly expand the sales tax base by applying it to several so-called luxury services such as lawn care and personal training. Had they agreed to such a plan, it would have allowed the sales tax rate to remain lower.
A large chunk of Landry’s plan is also technically on hold until voters statewide consider a lengthy, tax-and-budget oriented constitutional amendment March 29.
The governor hopes to motivate the public to vote for the amendment by linking it to public school teacher pay. If voters approve it, a $2,000 stipend public school teachers have received for the past two years will become a permanent part of their salary.
The income tax cuts and sales tax hike will take effect Jan. 1 regardless of whether the amendment passes.
The Louisiana Illuminator, an independent, nonprofit, nonpartisan news organization with a mission to cast light on how decisions in Baton Rouge are made and how they affect the lives of everyday Louisianians, contributed to this report.
Download the Unfiltered with Kiran app from the Apple App Store and Google Play to stay updated on the latest news across the Capital area.
