March 12

Indiana governor endorses big cuts in income, business taxes


Indiana Gov. Eric Holcomb threw his full support Thursday behind a range of business and individual income tax cuts, saying tax collections were strong enough to overcome his previous reluctance.

Holcomb endorsed much of a tax cut proposal championed by Indiana House Republicans that has been opposed by Senate Republican leaders. Holcomb has for several months sided with those Senate Republicans, citing uncertainty in the economy, until signaling a shift in his opinion last week.

The governor’s proposal, however, would slow walk a cut in the state’s current individual income tax rate of 3.23% to 2.9% over much of the decade. The seven-year implementation would push the full cut until 2028, spreading out both the impact on state revenue and the savings to taxpayers.

The state has seen a big jump in tax collections over the past year helped by federal COVID-19 relief funding, which is projected to boost state government’s cash reserves to a highest-ever level of $5.1 billion by the end of June.

Holcomb said he expects that trend of revenue growth will continue and “that the time is now to act on a tax plan that gives back to our growing business community and to hardworking Hoosiers.”

Republican Senate President Pro Tem Rodric Bray said he expects the Senate will go along with some tax cuts even though concerns remain about inflation, along with economic fallout from the Russian invasion of Ukraine and the ending of federal COVID-19 relief funding.

“We just want to be as prudent as we can with state dollars so we make sure that we don’t cut too deep too quickly, and so that’s why you see us being a bit cautious,” Bray said.

Negotiations over the size of any tax cuts will likely continue over the coming days ahead of next week’s expected end of this year’s legislative session.

Holcomb’s income tax cut proposal would reduce state revenue by $900 million a year when fully implemented, according to the governor’s office.

When asked why he was seeking an income tax rate cut to 2.9% rather than the 3.0% that House Republicans proposed, Holcomb boasted about that becoming the lowest rate of any state with such a tax.

That rate, however, would only tie Indiana with North Dakota for the lowest maximum income tax rate, according to data from the Tax Foundation, a Washington-based think tank. Indiana has a single tax rate covering all income levels, while numerous states have lower rates for low-income taxpayers.

Bray called Holcomb’s income tax proposal “pretty modest, especially if you phase that in over a matter of several years.”

“The nice thing about phasing it in is that it kind of makes gradual the impact on any state budget issues if our economy begins to go cold,” Bray said.

Holcomb also endorsed some cuts to property taxes paid on business equipment and utility company taxes that were included in the House GOP plan. The utility tax cuts would be worth about $220 million a year, the governor’s office said.

It is unclear how much businesses would save on the equipment property tax as Holcomb proposed changes applying only to new equipment. That tax money primarily goes to city and county governments and school districts, which have raised worries about tax shifts to residential property owners or overall revenue drops.

The proposed changes, however, would result in state government becoming even more dependent on its 7% sales tax, which is already its biggest revenue source and the second-highest rate in the country. Indiana’s individual income tax is currently lower than any surrounding state.

Republicans have turned aside proposals from Democrats for steps such as lowering the sales tax to 6.5%, increasing the state’s tax deduction on rent from $3,000 to $5,000 a year and eliminating the sales tax on diapers and tampons.

Holcomb said he believed an income tax cut would have more impact than a sales tax cut.

“We believe that will lead to growth and that people will want to spend it, which they have been prone to do over the last so many years, but even during the pandemic that has led to our growth so we’d rather you keep your money before we take it,” Holcomb said.


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