Louisiana’s Tax System Exacerbates Inequality, In-Depth National Study Finds

Louisiana’s Tax System Exacerbates Inequality, In-Depth National Study Finds

State Has the 10th Most Regressive Tax Code in the Nation

Louisiana’s tax system is upside-down, with the wealthy paying a far lesser share of their income in state and local taxes than low- and middle-income families. That’s according to the latest edition of the Institute on Taxation and Economic Policy’s Who Pays?, the only distributional analysis of tax systems in all 50 states and the District of Columbia. 

The regressivity in the tax code is largely driven by Louisiana’s heavy reliance on sales taxes to finance state and local government operations, while income and property taxes on wealthy people and corporations are low compared to other states. Sales taxes fall disproportionately on people with low incomes, while income and property taxes are more likely to affect the wealthy.  

Gov. Jeff Landry and the Legislature can help fix this imbalance by ending the loopholes and tax breaks Louisiana provides for corporations, strengthening the state’s income tax and expanding tax credits for working families.   

“The best way to build a stronger, more inclusive Louisiana economy is by investing in Louisiana’s people and communities. For that to happen we need a fair tax structure where the wealthiest people and corporations pay what they owe,” said Jan Moller, executive director of the Louisiana Budget Project. 

The report’s key findings for Louisiana:

  • The lowest-income 20 percent of taxpayers face a state and local tax rate that is 102 percent higher than the top 1 percent of households. The average effective state and local tax rate is 13.1 percent for the lowest-income 20 percent of individuals and families, 12.5 percent for the middle 20 percent and just 6.5 percent for the top 1 percent.
  • Louisiana has the 10th most regressive tax system in the nation. 
  • The planned reduction in the Earned Income Tax Credit from 5 to 3.5 percent of the federal credit in 2031 will slightly worsen this regressivity. If in effect in 2024, it would cause Louisiana to drop to 9th most regressive on the ITEP Inequality Index.
  • Louisiana is one of 42 states that tax the top 1 percent less than every other income group, and one of 35 states that tax their poorest residents at a higher rate than any other group. 

Nationally, tax systems in 44 states exacerbate inequality by making incomes more unequal after collecting state and local taxes, while systems in six states plus D.C. reduce inequality, the report finds. On average across the country, the lowest-income 20 percent of taxpayers face a state and local tax rate nearly 60 percent higher than the top 1 percent of households. The nationwide average effective state and local tax rate is 11.3 percent for the lowest-income 20 percent of individuals and families, 10.5 percent for the middle 20 percent, and 7.2 percent for the top 1 percent.

“When you ask people what they think a fair tax code looks like, almost nobody says we should have the richest pay the least. And yet when we look around the country, the vast majority of states have tax systems that do just that,” says Carl Davis, ITEP’s Research Director. “There’s an alarming gap here between what the public wants and what state lawmakers have delivered.”

About the report: 
Who Pays? is the only distributional analysis of tax systems in all 50 states and the District of Columbia. The comprehensive 7th edition of the report assesses the progressivity and regressivity of state tax systems by measuring effective state and local tax rates paid by all income groups. No two state tax systems are the same; this report provides detailed analyses of the features of every state tax code. It includes state-by-state profiles that provide baseline data to help lawmakers and the public understand how current tax policies affect taxpayers at all income levels. Over 99 percent of all state and local taxes, measured by their revenue contribution, are included in the analysis.

About ITEP
ITEP is a non-profit, non-partisan tax policy organization. We conduct rigorous analyses of tax and economic proposals and provide data-driven recommendations on how to shape equitable and sustainable tax systems. ITEP’s expertise and data uniquely enhance federal, state, and local policy debates by revealing how taxes affect people at various levels of income and wealth, and people of different races and ethnicities.

About the Louisiana Budget Project
The Louisiana Budget Project (LBP) monitors and reports on public policy and how it affects Louisiana’s low- to moderate-income families. We believe that the lives of Louisianans can be improved through profound change in public policy, brought about by: creating a deeper understanding of the state budget and budget-related issues, looking at the big picture of how the budget impacts citizens, encouraging citizens to be vocal about budget issues that are important to them, and providing insight and leadership to drive the policy debate.