Senate Republicans on Wednesday said they hope a legislative tax panel leads to eliminating the state income tax, though they acknowledged that might not prove feasible.
Wednesday brought the first meeting of a joint legislative committee tasked with reviewing every aspect of Indiana’s tax code and recommending any changes, ideally in time for the next budget session in 2025.
The panel’s chair, Sen. Travis Holdman, R-Markle, said, “Nothing is off the table” except K-12 and higher education funding. He said the panel might recommend sweeping changes or conclude only minimal changes are needed.
“It has been some 20 years since the General Assembly has taken a strategic, holistic view of the tax structure in Indiana,” he said. “This will be a heavy lift for all of us, and I hope we’re all up to the challenge.”
State Budget Agency staff told the panel Indiana’s current finances are in excellent shape. The state has a AAA bond rating from all three credit rating agencies, making it cheaper for the state and local governments to borrow money.
The 2023 budget year ended on June 30 with total budget reserves of about $2.9 billion, slightly above projections, and the state has about $1.47 billion in debt. Medicaid spending has tripled in the past 20 years, from about $1.4 billion in 2006 to a projected $4.1 billion in 2025, while education spending has grown by nearly half since 2017.
Additionally, state economists told lawmakers credit agencies are increasingly factoring states’ deferred maintenance into their rating decisions. They said Indiana has somewhere between $300 million and a little less than $1 billion in deferred maintenance needs.
Senate Republicans have long said they want to add Indiana to the small number of states that have eliminated their income tax. One of their former colleagues, Brandt Hershman, the former chair of the Senate Tax and Fiscal Policy Committee and now a D.C.-based consultant, cautioned against doing so. He said the states that have eliminated the income tax replaced the revenue due to significant mining operations, such as Texas and its oil fields; tourism, as in the case of Florida; or through the presence of large federal military or civilian infrastructure.
Others disagreed. Kurt Couchman of Americans for Prosperity said state income taxes compound the effects of federal income taxes and discourage workers and investment funds from moving into a state. He said other options might include reducing tax credits and restricting the use of tax increment financing.
Democrats on the panel said repealing the state income tax is too risky. They pointed to Kansas’ 2012-2013 tax cuts, which led to a budget crisis that was only resolved when that state’s Republican-led legislature repealed most of the cuts.
“I don’t want to do what Kansas did to have a great experiment. We’re going to eliminate everything, and we’re not going to tax people, and guess what happened? Their budget blew up,” Rep. Ed DeLaney, D-Indianapolis, said.
Holdman said comparisons with Kansas’ experience are irrelevant because the Kansas tax cuts coincided with a marked increase in government spending.
DeLaney and other Democrats also criticized — what they called — a built-in bias in favor of Senate Republicans’ goals. All of the committee’s informal working groups report to Senate Republicans, and most of the outside groups signed up to testify so far are conservative think tanks such as AFP, the Tax Foundation, and the American Legislative Exchange Council. Holdman said Democrats and left-leaning groups are welcome to submit testimony during hearings or through the committee’s working groups.
Holdman said the committee will meet monthly through November. It will then meet again in January before reconvening in April, following the end of next year’s short session.
5 comments
The first thing Indiana should do is pay off the $1.47 billion in debt so the money wasted on interest can go towards more important things, however the majority of Hoosier’s chose to define that. Lower the sales tax so we are the lowest of the surrounding states so as to encourage those from surrounding state so make their high dollar purchase here. Third, because we have some very high quality colleges in Indiana let’s spend some money on research to come up with quality road building material. Most of the cost of roads is in the labor of redoing them every few years. Spent the extra money on quality materials that last longer. Roman concrete is in great shape and we keep paying for the same old crap, follow the money, who gets the kick backs from substandard road surfaces. Our roads suck.
Spending should be frozen at current or less levels only allowing adjustment for inflation. I also agree with part of what Kurt Couchman of Americans for Prosperity said about reducing tax credit and elimination of tax increment financing. As in Michigan tax increases should be put to the voter at election time. Are all of the pension obligations the State of Indiana has incurred paid in full?
Would DeLaney and other Democrats also criticize the “built-in” bias if it favored Democrat goals? Of course not, they (like all leftists) are hypocrites and can pound sand.
That said, it would be interesting to see what they replace the revenue stream with. I would anticipate a hike in sales taxes to offset the cut. The nice thing is, it would shift some of the tax load to the Domers and the Indy conferences and sporting events.
How about eliminating property taxes instead? Or also? Would be nice if you could actually own your property instead of the government.
I’m actually OK with property taxes, but it should be based on the value of the land and not the structure or and “improvements”. We should never be penalized for improving our homes and communities. Yeah, paying eternal rent to the government sucks, but property taxes prevent land hoarding – look at what Billiam Gates has been doing.