State income tax repeal unlikely this year
Gov. Jeff Landry’s proposal to eliminate the state income tax is struggling to gain traction as Louisiana lawmakers face difficult decisions to prevent a projected budget shortfall next year.
Doing away with the tax has been a goal of some state Republican leaders for years and has emerged as one of Landry’s objectives since he took office in January 2024. But key legislators say the idea is still out of reach, even with a supermajority of GOP members in the statehouse.
“We won’t do it at all this year,” Senate President Cameron Henry, R-Metairie, said when asked about the chances of repealing the state income tax.
In his speech March 9 to convene the 2026 legislative session, Landry noted the tax restructuring lawmakers have approved so far in his term and called on them to consider fully eliminating the income tax. Louisiana eliminated its tiered income tax brackets two years ago and replace them in 2025 with a flat 3% rate for individuals and 5.5% for businesses.
However, legislative leaders say they could soon be facing some difficult fiscal decisions even if income tax rates don’t change.
Henry didn’t rule out the matter for consideration next year but said a modest income tax rate reduction would be more likely than a full repeal. He noted that one-half of a percentage point reduction in the income tax rate costs the state roughly $500 million annually.
In a presentation to the House Ways & Means Committee Tuesday, legislative staffers who track the state’s revenue told lawmakers to beware of a potential shortfall as soon as next year. After nine years with annual cash surpluses, the state could now face an estimated deficit of $329 million by July 2027. Unless lawmakers take steps to reverse course, that deficit is forecast to balloon to over $900 million by 2030, according to the projections.
The future revenue estimates include a reduction in the state’s 5% sales tax, which falls to 4.75% in 2030. In 2025, the tax was expanded to cover more purchases, such as streaming services and other digital products.
House Speaker Phillip DeVillier, R-Eunice, made his concerns clear at the hearing, urging members of the committee to act “very cautiously” on any legislation this year that would lower state revenues. The Ways & Means Committee is where tax legislation originates.
“We haven’t even gone through a full year of [tax] filings yet,” DeVillier said in a later interview, noting this tax season is the first for Louisiana under its new flat income tax rates.
The speaker pointed to the tax changes adopted in a 2024 special session as a source of uncertainty for the state’s finances. In addition to the income tax changes, lawmakers repealed the state’s corporate franchise tax that brought in an estimated $570 million in revenue in 2025 — its final year in effect. All three tax changes combined resulted in a $49 million reduction in revenue for the state’s general fund, which covers most government expenses.
The legislature slashed tax rates two years ago without adequately scaling back all the tax credits and exemptions it provides, Rep. Les Farnum, R-Sulphur, said during the Ways & Means hearing.
The corporate income tax stands out from Louisiana’s other revenue streams because the state actually exempts more than it takes in. Only about 36% of corporate income is taxed, according to the fiscal staff’s presentation.
“There are still, particularly on the corporate side, a lot of tax credits still standing that corporations can still claim that may impact our corporate tax collections,” Legislative Fiscal Officer Alan Boxberger told lawmakers.
Lawmakers do have options to mitigate at least some of the shortfall. They can tap into roughly $350 million scheduled to revert back to a state trust fund for transportation projects in 2028. They can also stop a 0.25% sales tax rate decrease, Boxberger said.
But other looming question marks remain, such as economic conditions and inflation.
State mineral revenues from oil and gas drilling fell $520 million last fiscal year, a roughly 53% decrease from 2024 and a continued decline from a peak of $1.1 billion in 2023.
“It’s a combination of price and production,” the Landry administration’s chief economist Manfred Dix told the committee. “Production has been steadily falling over the last 15 years.”
Another uncertainty for the state is the fiscal impact from changes at the federal level, particularly from President Donald Trump’s One Big Beautiful Bill, which cut safety net funding to states for health care and social services. The law requires Louisiana to cover a larger share of the cost for federal food assistance and Medicaid.
Jan Moller, executive director of Invest in Louisiana, said the state has so far seen a $42 million hit from the law with more expected to come. When the law takes full effect in 2027, he predicts the state could be on the hook for more than $400 million to keep Medicaid and food stamps funded. Invest in Louisiana evaluates state policy and its impact on low-income and working-class families.
“And we’re not even talking about the loss of coverage,” Moller said. “There’s people getting benefits now who are gonna lose those benefits … All in the name of paying for tax cuts for the wealthiest individuals and corporations.”
While state lawmakers have little control over the acts of Congress, most seem to hear their leaders urging fiscal caution. They include Rep. Jack McFarland, who chairs the House committee that shapes the annual state budget.
“You’ve seen the five-year forecast,” McFarland told the Ways & Means Committee. “We have to err on the side of caution and recognize that yes, there’s a predicted shortfall next year.”
Rep. Danny McCormick, R-Oil City, is one of the lawmakers who filed a bill to eliminate the income tax this year. When asked about it Wednesday, he said he will likely defer his proposal.
“We definitely wanna go there, but we’ve gotta take our time I guess,” McCormick said.
