Nelson appointment signals an income tax cut

By Christopher Tidmore
Contributing Columnist

The decision by Jeff Landry to name State Rep. Richard Nelson to lead the Louisiana Department of Revenue may signal that a serious effort to reduce or eliminate the state income tax might become a priority of the governor-elect when he takes office in January.

Landry expressed few firm stands on fiscal or economic policy over the last year, preferring to concentrate his campaign messages on hot button socially conservative issues like crime or transgender restrictions. A symbol of how unthreatening the outgoing attorney general was to traditional Democratic constituencies crystalized when Landry received the lion’s share of campaign contributions from the Louisiana Trial Lawyers Association. He remained somewhat non-committal on the GOP priority of “tort reform,” after all.

He also stayed quiet on any significant form of tax reform, even endorsing Gov. Edwards’ signature achievement of allowing parish and municipal governments to increase their ability to levy property taxes on companies – which previously had been granted the Industrial Tax Exemption – from zero to as much as twenty percent of the normal taxable assessment. Chemical and manufacturing concerns hated it, but these large industries seemed to have no friend in the new Republican governor.

Landry seemed almost uninterested in fiscal reform until he appointed Nelson the state’s chief tax collector. The Mandeville Republican had predicated his bid for governor on eliminating the state’s individual income tax over four years and lowering the Pelican State’s corporate income tax, before dropping out and endorsing the Attorney General for the top job.

It is doubtful that Landry would back Nelson’s plan to replace the revenue by lowering the state’s $75,000 homestead exemption to $25,000, but the governor could prove more sympathetic to allowing local governments to begin imposing property taxes on certain nonprofit institutions and businesses who pay none now. Landry’s previous decision to adopt Edwards’ reform might signal an openness to Nelson’s proposal to end the Industrial Tax Exemption Program, which reduces business taxes to lure investment in Louisiana, as a way to pay for it. Landry has endorsed some limited changes to the inventory tax, another Nelson goal, as well as the Mandeville representative’s proposal to lower local sales taxes on groceries to lessen the tax bite on the poor.

Even if Landry does not wholesale adopt an end to the personal income tax, Nelson’s appointment signals a willingness to entertain some partial reforms on that front including freezing the maximum amount required to pay in taxes and phasing out income taxes on retirees. The most Louisiana earns in taxes from its wealthiest citizens amounts to $30,000 per year per top taxpayer. Capping income taxes at that amount would cost the state treasury little in the short term. The gamble is that the cap could draw millionaires back to the state who fled to no income tax states such as Texas and Florida, as trading a limited and ceilinged income tax may prove competitive with those states’ high property taxes, thereby garnering more revenue for the Louisiana treasury long term than is lost.

The same wager would be to phase out income taxes for those over 65 (or 60), betting that the increase in sales tax revenues for household and other purchases – as Louisiana became a retirement haven – would offset the loss of tax dollars from the elderly already resident.

Whatever form the final proposal might take, appointment of Nelson likely signals substantive changes in Louisiana’s income tax structure, an effort to reach out to economic conservatives who primarily backed Landry’s opponent Steve Waguespack – as well as Nelson to a lesser degree. Nelson seemed pleased with his appointment to be the state’s tax czar. The new secretary of the Department of Revenue said in a statement, “I am honored to have the confidence of the Governor-elect and to continue serving the people of Louisiana…We will be ready on Day 1 to address the challenges facing our state.”

Nelson’s sole paid campaign aide from his gubernatorial bid, James Lee, will serve as a legislative liaison to the revenue department, according to Landry’s transition staff.

The challenge, though, is that Nelson will face the terrified flashbacks from some of the more senior members of the state Senate, who served as state Representatives during the first year of the last Republican administration. Repeal of the Stelly Plan and the consequent income tax cuts, under Bobby Jindal, matched with the national recession devastated Louisiana’s fiscal balance sheet at the time.

“It was an unprecedented situation,” Edwards’ Commissioner of Administration Jay Dardenne recently told the Press Club of Baton Rouge. It took a missive sales tax hike and several years of austerity for Louisiana’s budgetary balance to be restored. That might make some experienced legislators wary of major income tax reductions.

This article originally published in the December 11, 2023 print edition of The Louisiana Weekly newspaper.