Gov. Mike Pence’s proposal to lower Indiana’s income tax rate didn’t get a vote Tuesday – but a new state budget that drops that tax cut in favor of extra funding for schools and roads did.
A state Senate panel debated two tax cut measures: One that would carry out the new Republican governor’s plan to lower the individual income tax from 3.4 percent to 3.06 percent over two years, and one that would drop the rate to 3 percent over four years.
There was no vote, though, and several of the committee’s members said they will proceed with caution – only giving the tax cut serious consideration if a new revenue forecast predicts an unexpected economic uptick before the April 29 deadline for lawmakers to approve a new budget and adjourn for the year.
“This is not a conclusion of the discussion,” said Senate Tax and Fiscal Policy Committee Chairman Brandt Hershman, R-Buck Creek. “There’s an opportunity to continue this discussion as the revenue picture becomes clear to us.”
The budget-writing House Ways and Means Committee, meanwhile, approved House Republicans’ two-year, $30 billion spending plan. It increases education funding by 2 percent in its first year and 1 percent in its second year and tucks in an extra $250 million per year to beef up state and local transportation funding.
Its omission of Pence’s tax cut – a decision in which the governor said he was “very disappointed” – sets the stage for an intraparty battle that is testing whether Pence has the political capital necessary to achieve the top goal on his first-year legislative agenda.
Advocates of the tax cut included Sen. Mike Delph, the Carmel Republican who is carrying the governor’s proposal.
He told the committee that as the federal payroll tax increases by 2 percent this year, lowering Hoosiers’ income taxes by 0.34 percent would help offset the new burden – and keep $520 million in taxpayers’ pockets each year.
“It would have a cascading, dynamic flow, and it would inject a half a billion dollars into the Indiana economy,” Delph said.
Key legislative leaders, including Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville, said they view the issue in a broader context.
Indiana is already phasing out its inheritance tax – a move that will be completed by 2022, but that lawmakers say they might consider speeding up.
“It just seems like we ought to finish that job,” Kenley said.
Sen. Lindel Hume, D-Princeton, also said the state also owes pension money to teachers who entered the profession before 1996 – and is requiring businesses to pay higher taxes to repay more than $2 billion borrowed during the recession to bolster Indiana’s unemployment insurance fund.
He said income taxes are a “regressive tax” because poor Hoosiers have to spend more of the money they earn, while wealthier Indiana residents can save more. Instead, he said, the state should consider cutting its sales tax – or should keep its taxes at their current levels.
“We have things that government really needs to do. Education is a terribly important part of government, and roads – the infrastructure of this state – are very important not only to our people but also very important to businesses that look at locating in Indiana,” Hume said. “Some of those things are more important than taxes.”
Pence has pitched the income tax cut as one that would help the 92 percent of Indiana businesses that file as individuals.
Business groups that are traditionally powerful Republican allies, though, offered lukewarm support for the tax cut.
Indiana Manufacturers Association lobbyist Tim Rushenberg said the proposal has his orgnaization’s “guarded support. Indiana Chamber of Commerce lobbyist Bill Waltz said the group “cannot not” support a tax cut, but that education and roads are vital to Indiana’s economy as well.
Other groups, including the Indiana Family Institute and Americans for Prosperity, said they support the tax cut.
“We support lowering the tax burden on Hoosier families and small businesses, and that includes lowering the individual income tax rate here in Indiana,” said Eric Miller, the head of Advance America. “It’s a good thing to let Hoosier families and small businesses keep more of their hard-earned money.”
Hershman said he won’t schedule a vote on the tax cut proposals that were the subject of his Tuesday committee hearing. The budget, meanwhile, moves to the full House floor for a vote in the coming days.