A special legislative session that Gov. Jeff Landry has called next month centers around his tax overhaul proposal that could significantly reduce income taxes for virtually everyone in Louisiana and possibly increase the amount of money the state can spend over the next five years, according to early projections from the Legislative Fiscal Office and an independent economist .

This all depends on whether or not lawmakers support Landry’s plan as presented.

The governor’s suggested tax maneuvers also call for permanent increases in teacher salaries, rather than maintaining annual stipends.

Landry advocates changes as solutions to a problem looming budget deficit estimated between nearly $600 million and nearly $800 million depending on the scenarios in play.

The state’s general fund balance, which covers the cost of most government operations, is estimated to decrease by about $124 million in the first year. But each year thereafter, it would bounce back the other direction for a total of $259 million in the fiscal year ending in 2029, according to projections Revenue Secretary Richard Nelson shared with a Louisiana Senate committee Thursday.

The first year crisis is mainly due to when the changes will take effect. The proposal would expand the sales tax base for only part of fiscal year 2025, and revenue gains from repealing the tax incentives would likely not be realized until 2026.

Nelson, the chief architect of Landry’s plan, also presented his agency’s project. parish by parish analysis of the impact of the tax plan on local governments. Most show a clear increase in income. Legislative Finance Officer Alan Boxberger said his office would not provide similar analyzes for local government.

The plan so far includes a package of proposals from the Landry administration it would make sweeping changes to Louisiana’s tax structure. Lawmakers have not yet submitted bills for the special session, so the Legislature’s fiscal staff has yet to assess their exact impact.

The set of changes includes, among other things:

• an expansion of the state sales tax on a wider variety of digital services and products;
• the establishment of a flat-rate tax on the income of individuals and businesses;
• the repeal of the corporate franchise tax and the gradual elimination of inventory taxes; And
• the repeal of many special interest tax credits.

Nelson was a strong supporter of tax reform while in the State House and unsuccessfully proposed eliminating the state income tax and the many tax breaks that lawmakers have passed over the decades .

Many of the ideas in the tax package are not new and have been proposed in previous years or are at work in other states. Nelson said he took pieces of tax studies and put them together.

If the plan is adopted and its budget projections If true, it would mean a big victory for the governor to not only remove the fiscal cliff, but also lower income taxes for residents. Additionally, a new flat tax rate and modernized corporate tax structure would bolster Landry’s conservative reputation and give him bragging rights.

But a lot of it depends on aligning multiple elements at a rather accelerated pace. From the outset, the governor needs massive legislative support to implement critical elements of the plan. And, ultimately, voters would have to approve a rewrite of the tax section of the Louisiana Constitution.

The income tax proposal would eliminate Louisiana’s three progressive income tax brackets, which currently top out at a rate of 4.25%, and replace them with a single flat rate of 3% on all income . This would be associated with a much higher standard deduction of $12,500 per filer, up from $4,500.

Such a high deduction “entirely eliminates the tax” for low-income filers who are taxed at a rate of 1.85%, according to a report. analysis by Greg Albrecht, former chief economist of the Legislature for more than two decades.

The reduced and flattened income tax rate would provide huge savings to mid- and upper-tier filers who currently pay 3.5% and 4.25%, respectively.

The lion’s share of the savings, about 54%, will go to the wealthiest 10% of tax filers – those earning $150,000 or more – while about 46% of the reduction will go to the remaining 90% of households reporting incomes higher. weak. This is largely because those with higher incomes generally pay a higher amount of income tax, according to the analysis.

A similar proposal in the package would replace the corporate income tax with a flat rate of 3.5%, down from the maximum progressive rate of 7.5%.

“At the end of the day, everyone gets an income tax cut,” Nelson told senators last week.

To fund these reductions, the administration proposes renewing an expiring 0.45% sales tax, ending numerous sales tax exemptions and significant tax breaks for film production, job creation and industrial manufacturing, and to apply sales taxes to 40 new services. .

Among the services sales tax would apply to car washes, dating and matchmaking services, shoeshine, fitness training, lawn care, decorating, photography, timeshares, to event planning, pet sitting and grooming, research surveys, boat storage, security, ride sharing, space. rentals, travel agents and lobbying.

Asked in a post-meeting interview whether the sales tax increase might discourage consumer spending, Nelson said he expects it to go largely unnoticed by most of the public. He added that consumers will likely prefer to no longer have local sales taxes on prescription drugs – a measure that is part of the changes.

Sen. Pat Connick, R-Marrero, recommended a change to the so-called sales tax “cleanup” legislation at Thursday’s committee meeting: including an exemption on repairs needed after natural disasters . Residents should not have to pay more for mitigation and home improvement services, he said. Nelson agreed with the idea.

Louisiana Economic Development Secretary Susan Bourgeois told the committee that all of her agency’s tax incentive programs, which cost about $450 million a year, would end under the new tax package. The agency would then work with lawmakers next year to come up with new incentives tailored to the state’s new tax structure.

“We are not looking for replacements,” Bourgeois said. “We’re looking for a reinvented toolkit…We’re saying, in good faith, that these need to be removed, and we’ll come back to you in March or April of next year and offer you the new toolkit.”

So far, lawmakers have been generally receptive to the plan, although some have expressed concern about local government buy-in, particularly in parishes that collect many inventory taxes.

Part of the plan calls for giving local governments the option to waive their inventory taxes, which businesses currently pay to local governments but are then refunded through a state tax break.

This strange configuration essentially transformed the inventory tax into a mechanism for the state to cover the expenses of certain parish administrations.

To persuade local governments to immediately eliminate their inventory taxes, Landry’s proposal would offer local governments a one-time lump sum equal to three times their annual inventory tax revenue, up to a maximum of $15 million. dollars. Parishes that phase it out over several years would be eligible for payments equal to the previous year’s actual collections.

Nelson told lawmakers he believes any new sales tax revenue that would be collected locally would more than offset the lost inventory tax revenue.

Local governments could lose taxes they imposed on prescription drug sales, which the governor wants to eliminate to comply with the state’s exemption.

A so-called sales tax “clean-up” bill would require an exemption from local sales tax on manufacturing machinery and equipment. Its budgetary impact is not yet clear, and Nelson told lawmakers it could be converted from a mandate to an option if the cost to local governments cannot be offset.

Finally, another major proposal is to use about $2 billion in three education trust funds to pay off teacher pension debt, freeing up nearly $300 million. Nelson said that with the state increasing debt, parish school boards could permanently raise salaries for K-12 staff, by more than $2,000 on average.

This and changes to the inventory tax would both require changes to the Louisiana Constitution. Constitutional amendments require support from two-thirds of each legislative chamber, followed by voter approval. They would appear on the March 29 ballot, likely alongside other proposals, if lawmakers approve it.