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Louisiana’s regressive tax code is contributing to racial income inequality

Posted on November 9, 2018

Louisiana’s history of institutionalized racism has created barriers to economic prosperity for many people of color in the state. Black households in Louisiana are poorer, on average, than white households. And because of that, they also pay a higher percentage of their income in state and local taxes than white households.

Earlier this month, the Institute for Taxation and Economic Policy (ITEP) released the 6th edition of its “Who Pays” report that breaks down the effective tax rates paid by each income quintile. According to ITEP, Louisiana has the 14th most regressive tax code in the country. A Louisiana household in the bottom-fifth of income earners, with an annual income of $17,100 or less, pays nearly 12 percent of that income in state and local taxes. A household earning in the top 20 percent, with an annual income of $91,500 or more, pays less than 8 percent of their income in state and local taxes. This regressivity means that low-income Louisianans are contributing more than their fair share to their local and state governments, while residents in higher income brackets are catching a break.

Unfortunately, black Louisianans are two-and-a-half times more likely to live in poverty than whites, and 15.5 percent of black Louisianans live in deep poverty – meaning their income is less than half of the federal poverty level.

Black Louisianans make up a disproportionate share of the lowest income groups, and are underrepresented in the highest income brackets. One-third of Louisiana residents identify as black, yet black taxpayers comprise 40 percent of the lowest income bracket and just 11 percent of the top bracket. Because of Louisiana’s regressive tax code, this means black Louisianans are also more likely to pay higher effective tax rates.

White Louisianans are overrepresented in the highest income groups. While white Louisianans comprise roughly 63 percent of the state, they are only 55 percent of the lowest income bracket and comprise a hefty 85 percent of the top income bracket. Since effective tax rates in Louisiana go down when income goes up, white Louisianans are less likely to pay the highest effective rates.

It’s no mystery why Louisiana’s tax code is regressive: The Pelican State has the second-highest sales tax in the country when you combine state and local taxes, a fraction of a percentage point behind top-ranked Tennessee. Sales taxes fall harder on low-income households, which are forced to spend a higher percentage of their income on basic necessities. Louisiana’s personal income taxes, meanwhile, are third-lowest in the country among the 41 states that tax incomes from wages. Although Louisiana’s income-tax rates are structured to be progressive, the state also allows a federal income tax deduction that costs the treasury nearly $1 billion per year and disproportionately benefits the wealthiest taxpayers.  

To help level the playing field, Louisiana should eliminate this generous tax deduction that largely serves to lower the taxes of the wealthiest.

Reforming Louisiana’s tax code by eliminating unorthodox tax breaks would help ensure that the state has adequate revenue to fund vital state services. And it also would help lower the economic barriers that keep many black households from reaching their full economic potential.

-by Neva Butkus

 

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