Amendment 2

“Do you support an amendment to lower the maximum allowable rate of individual income tax and to authorize the legislature to provide by law for a deduction for federal income taxes paid?”

Sounds simple right. Not so fast. We help you understand the details of Amendment two.

This is Louisiana’s attempt at tax reform.  The state tax structure has not been modified since 2003.  And the current structure creates volatility for personal taxes and the state budget.  This results from the federal tax deduction requirement in the state’s constitution.

When federal taxes get lowered, then individual Louisiana state taxes are actually increased.  And when federal taxes are raised, then individual Louisiana state taxes are reduced but state revenue is also reduced. 

What your vote will do:

A yes vote creates a series of tax changes affecting the your individual income tax, the corporate income tax and the corporate franchise tax.  Also if state revenue grows very rapidly another tax break happens.

This yes vote will lower your tax rates but eliminates your tax deduction. So, your actual tax bill will not change much over time. Instead, your tax bill is levelized. The topsy turvy whirly bird state tax bill and revenue based on federal taxes is replaced by a reduction in personal income taxes and  a slight increase in corporate taxes.

Individual Tax Reductions

Richer people’s tax bill gets the biggest reduction.  If make more than $50,000 then your tax rate goes from 6% to 4.25%. But if you make between $12,500 and $50,000 your rate goes from 4% to 3.5%.  If you make less than $12,500 your rate is reduced from 2 to 1.85%. 

Corporate Tax Changes

For corporations the yes vote is a mixed bag.  The tax brackets are reorganized. Then some rates are decreased. And some are increased.  The highest rates go unchanged.  The details are:

             Bracket Changes                                                                                                New Tax Rates

Old BracketNew BracketOld Tax RateNew Tax Rate
First $25,000 of IncomeFirst $50,000 of Income4%3.5%
Between $25,00 and $50,000 of IncomeBetween $50,000 and $150,000 of Income5%5.5%
Between $50,000 and $100,000Above $150,0006%7.5%
Between $100,000 and $200,0007%  
Above $200,0008%  

Corporate Franchise Rate Changes

Franchise taxes are based on retained earnings and investment capital not annual income. The current tax is $1.50 per $1,000 of taxable capital up to $300,000 and $3 per $1,000 of taxable capital above $300,000. Your yes vote eliminates franchise taxes on capital below $300,000 and reduces the rate to 2.75% on capital above $300,000.

Additional Tax Breaks in the Bill

A mechanism that potentially could reduce income tax rates further if tax collections turn out to be higher than expected. This mechanism would trigger if future tax revenue exceeds the amount of taxes collected in year 2018-2019 by a growth factor based on the state’s personal income growth. The tax reduction would not happen if the Budget Stabilization Fund (Rainy Day Fund) is below 2.5% of total state revenue. The rate of each tax bracket would decrease proportionally according to a growth factor formula.

So these tax breaks give richer people bigger tax breaks.  Also large corporations get bigger tax breaks than small businesses. 

Now you know so

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