Constitutional Amendment 2
Simplifying Louisiana’s tax code for the benefit of employers and employees.
Louisiana State Constitutional Amendment 2, a measure approved in November, stands to make the New Orleans metropolitan area—and as a result, all of Louisiana—a more attractive destination for businesses to relocate or expand and for out-of-state workers to pursue new opportunities in the region.
Authored by State Sen. R. L. Bret Allain II,the green-lit amendment eliminates the federal tax deduction and reduces the individual income tax rates across brackets, with a top rate of 4.25%.
“One of the issues that Louisiana has that very few states have is that they allow a deduction for federal taxes paid, which lessens your state tax liability,” says Janelle Cammenga, Policy Analyst with the Tax Foundation in Washington D.C. “In theory, that’s a nice thing to do for taxpayers, but in practicality, it turns the state tax code into an inverse mirror of the federal tax code.
“Therefore, anything that the federal government wants to favor—for instance, the Child Tax Credit—those incentives will penalize people on the state level,” Cammenga continues. “And then, because of those fluctuations from taxpayer to taxpayer, it makes state revenue really volatile and hard to plan for, since state taxes are tied so closely with the federal government’s tax actions.”
In the past five years, Louisiana has consistently ranked in the Bottom 10 in the Tax Foundation’s State Business Tax Climate Index — an objective tool that factors in several variables in determining the simplicity and user-friendly nature of tax codes. Cammenga says the passing of Constitutional Amendment No. 2 will go a long way in bumping Louisiana up those rankings.
“It’s Income Tax, it’s Franchise Tax, it’s Inventory Tax—there’s a whole list of types of taxes that are complicated and very different from what you’ll find in other states,” says Ileana Ledet, Senior VP of Policy at GNO, Inc. “From an economic development standpoint, we don’t want it to be more challenging to run a business, operate a business, or just work (in Louisiana).”
So what does this “simple” tax change mean for citizens of Louisiana across various income brackets? Upon the passing of Constitutional Amendment No. 2, the Tax Foundation outlined scenarios for various types of earners.
From a macro perspective, the new tax code slightly lessens the tax liability for roughly 90 percent of income earners. For instance, a worker making between $49,000 and $80,000 annually who files single and doesn’t have children will see his or her state income tax dip by 17 percent (roughly $240 in savings on the low end and $470 on the high end). A married couple with two children with a combined household income of $100,000 will see very little change in their state tax liability (savings of less than $20 annually). The same is true for low income, single filers, who will see savings of less than $20 annually.
“When you considered that 6 percent, and you just looked at that 6 percent without considering the federal deductions, on the surface it made working and doing business in Louisiana look more expensive than it actually was,” Ledet says. “What this amendment does is provide a more honest representation of what our income taxes are.
“It’s more straight-forward,” Ledet continues. “And with so many workers being more mobile, and with remote workdays becoming mainstream in the past two years because of COVID, people are paying more attention to things like state income tax. ‘How far will my paycheck go here compared to there? ‘From a competitive standpoint, seeing that lower rate makes working in Louisiana more attractive.”
These new tax reforms also offer relief for existing Louisiana businesses by lessening the Corporation Franchise Tax (which is levied on a company’s net worth, not revenue) and Corporate Income Tax Rates. Instead of the current system’s five-tiered Corporate Income Tax Rates, the system outlined in Constitutional Amendment 2 reduces it to three tiers, the highest being 7.5 percent, slightly less than that 8 percent applied to corporations with $200,000 or more in taxable income.
“In Louisiana, this kind of change has been a really long time coming,” Cammenga says. “There have been conversations for years and years about tax reform, and I think it finally sunk in to the state legislators that, ‘Hey, this is an issue that hurts making our state a competitive destination for businesses and workers, and it’s time to do something about it.’”