Where Does Louisiana Rank in Economic Freedom?

Originally posted at Pelican Institute. ​

Louisiana ranks 23rd among U.S. states in the Fraser Institute’s latest2024 Economic Freedom of North America (EFNA) report, reflecting persistent challenges with high taxes, excessive government spending, and restrictive labor market policies. However, recent reforms give hope for a brighter future. With targeted action, Louisiana can rise in the rankings and create a more competitive, dynamic economy for Louisianans.

Taxation: Progress on the HorizonLouisiana’s tax system has long been a barrier to economic freedom. High income and corporate tax rates have discouraged business investment and job creation, contributing to the state’s middling EFNA ranking. However,recent tax reforms are changing the narrative.

Last month, the state introduced a flat 3% individual income tax rate—down from a progressive tax structure—and a flat corporate income tax rate of 5.5%, eliminating the corporate franchise tax. These proposed changes, which voters will approve in March 2025, simplify the tax structure and aim to attract businesses and high-income earners. While these reforms will take time to influence the EFNA rankings, they signal a significant step toward improved tax competitiveness and economic freedom.

Government Spending: A Gator-Sized Problem
Louisiana struggles with high per capita government spending, which weighs heavily on taxpayers and relies heavily on federal aid. Inefficiencies and wasteful expenditures drain resources that could fund critical infrastructure or expand educational options for families.

Adopting stricter fiscal discipline is essential. Louisiana lawmakers recently took steps to curb the growth of recurring spending using the state’s general fund, but more will be needed. Like Colorado’s model, a population-plus-inflation expenditure limit would curb overall spending growth and stabilize the state’s finances. Additionally, priority-based budgeting would ensure funds are allocated efficiently, cutting waste and maximizing impact. Rising state and local debt and dependency on the state purse strings will continue to threaten fiscal stability without these measures.

Labor Market Regulations: Unlocking Potential
Ranked 34th in labor market freedom, Louisiana’s restrictive occupational licensing laws limit workforce mobility and discourage entrepreneurship. Licensing requirements often serve as unnecessary barriers to entry, making it harder for low-income residents to access higher-paying opportunities.

Streamlining licensing requirements would help Louisiana attract skilled professionals and improve economic mobility. Louisiana has taken bold steps to enact universal licensing recognition and to strengthen licensure regulation ties to health, safety, welfare, and fiduciary objectives, but numerous requirements not tied to these objectives remain in the state’s statutes. Removing these overly restrictive barriers  is essential for creating a flexible labor market and encouraging innovation and job growth.

How Louisiana Stacks Up
Louisiana lags behind regional leaders in economic freedom:

• Texas (5th): With no state income tax and more business-friendly policies, Texas consistently outpaces Louisiana.
• Oklahoma (11): Oklahoma excels with leaner budgets and pro-growth policies, serving as a model for reforms.
• Mississippi (34th) and Arkansas (24th): These neighboring states are making strides in spending restraint and tax reforms but have many more challenges.
  

In contrast, Louisiana remains far ahead of California (49th) and New York (50th), where high taxes, excessive spending, and restrictive regulations drive businesses and residents away.

A Roadmap to Improvement
To climb the rankings and foster prosperity, Louisiana must focus on three key reforms:

• Control Spending: Adopt a budget framework tying state government spending to a maximum rate of population growth and inflation with surpluses to lower income tax rates to zero.
• Simplify Licensing: Eliminate unnecessary occupational licensing requirements to attract skilled workers and boost workforce participation.
• Leverage Tax Reforms: Ensure recent changes improve competitiveness and monitor their effectiveness to promote sustained growth.

Conclusion
Louisiana can increase economic freedom but must remain committed to meaningful reforms. Recent tax policy changes are an encouraging start, but addressing government spending and labor market regulations will be critical to future success.
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By focusing on these priorities, Louisiana can become a beacon of opportunity in the South. Economic freedom is the foundation of prosperity, and Louisiana is ready to show its residents—and the nation—what’s possible with the right policies.