FILE - Bret Allain

Bret Allain (left), R-Franklin, chair of the Senate Revenue and Fiscal Affairs Committee, stands with Senate President Page Cortez on Monday, April 12, 2021, during opening day of the Louisiana legislative session in Baton Rouge, La.

(The Center Square) – On the last day of the 2021 regular session, the Louisiana Senate gave final passage to a complex tax overhaul that supporters hope will make the state more attractive to businesses and residents.

The package now heads to the governor's desk, though voters will have the final say in October.

“We’ve been working on this for over a year,” said Sen. Bret Allain, who chairs his chamber’s tax committee.

Gov. John Bel Edwards, a Democrat, has endorsed the Republican-led Legislature's stated goal of broadening the tax base while lowering rates as long as the changes are "revenue neutral" but has not taken a public position on the specific bills.

Louisiana's tax system is complex, and the high income tax rates can scare off people who might otherwise want to move to and invest in the state, supporters of the overhaul said.

Senate Bill 159 gives voters a chance to eliminate the constitutional guarantee that taxpayers can deduct from their state income taxes the cost of paying their federal income taxes. The unusual tax break ties the state’s tax policy to the federal government’s and could cause budget problems for the state if the federal government raises taxes.

In exchange for giving up the exemption, the maximum state income tax rate would be set in the constitution at 4.75%, compared with the current top rate of 6%. The bill also would take references to the other tax brackets out of the constitution, allowing lawmakers to set those rates in statute.

If voters approve the amendment, House Bill 278 would establish those rates. Current personal income tax rates of 2% on the first $12,500, 4% on the next $37,500 and 6% in excess of $50,000 would be reduced to 1.85%, 3.5% and 4.25%, respectively.

House Bill 292 would collapse the five corporate income tax brackets into three: 3.5% on the first $50,000, 5.5% on the next $100,000 and 7.5% on income in excess of $150,000.

Senate Bill 161 makes permanent an exemption to the state’s corporate franchise tax on the first $300,000 of taxable capital, which would exempt most businesses. The rate would drop from $3 to $2.75 per $1,000 above that level.

Like with other bills in the package, rates would go decrease more if state revenue growth hits certain triggers and the rainy day fund is roughly two-thirds full.

Sen. Karen Carter Peterson, a New Orleans Democrat, objected to including a top tax rate in the constitution, which would require the Legislature to pass another amendment and hold another public vote if the rate needs to be adjusted.

“I don’t think that is smart public policy,” she said.

Allain argued that since taxpayers would be giving up a constitutionally protected tax break, it’s fair to give the lower top income tax rate constitutional status as well.

The House approved all four items Wednesday. The Senate gave final passage to SB 161 on Wednesday and the other three bills Thursday.

Staff Reporter

David Jacobs is a Baton Rouge-based award-winning journalist who has written about government, politics, business and culture in Louisiana for almost 15 years. He joined The Center Square in 2018.