(The Center Square) – Louisiana lawmakers and Gov. Jeff Landry have averted a looming fiscal crisis through a sweeping tax reform package passed during November’s special legislative session, according to the Louisiana Public Affairs Research Council.
The measures will eliminate a nearly $400 million budget shortfall projected for the 2025-26 fiscal year, according to updated revenue forecasts from the state’s Revenue Estimating Conference.
“This tax code is bloated. This tax code is broken, this tax code is incredibly out of date. And this tax code holding us back,” Landry said in his address to the House of Representatives. “It has been patched together with duct tape and bubblegum and moves us from one fiscal cliff to the other.”
The REC, which met Thursday, confirmed the tax overhaul will generate sufficient revenue to stabilize Louisiana’s finances. The package introduces significant changes, including lower and flattened income tax rates, higher sales taxes, and the elimination of the corporate franchise tax.
Effective Jan. 1, the state’s individual income tax will shift from a progressive system to a flat 3% rate, coupled with increased standard deductions. Corporate income tax rates will flatten to 5.5%, and businesses will receive a new $20,000 standard deduction. Additionally, the corporate franchise tax will be phased out by 2026.
To offset these cuts, lawmakers raised the state sales tax from 4.45% to 5%, extended sales taxes to digital goods and services, and capped or eliminated various tax credits. A temporary diversion of $280 million annually from vehicle sales taxes — previously earmarked for infrastructure projects — will fund general government operations for two years.
The REC projects these measures will stabilize the state’s general fund at around $12 billion annually through 2027.
With the new revenue estimates, lawmakers have $447 million more to allocate in the upcoming budget year, avoiding the need for drastic cuts to education, healthcare or public safety. They also received an additional $29.4 million in this year’s budget, providing some immediate relief.
The Landry administration will use the updated projections to craft its budget proposal for the 2025-26 fiscal year, due to lawmakers by February 28.
Critics contend the reforms disproportionately benefit wealthier individuals and corporations while shifting the tax burden onto lower-income residents through higher sales taxes.
The sales tax hike was made behind closed doors in the 11th hour in the final 48 hours of the session.
The tax package aligns with a proposed rewrite of Article VII of Louisiana’s Constitution, which includes provisions for paying down retirement debt, consolidating state savings accounts and funding permanent teacher pay raises.