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Indiana income tax cut proposed amid some GOP skepticism

Photo Supplied / Indiana Statehouse

INDIANAPOLIS (AP) — Indiana House Republicans are proposing broad business and individual tax cuts even as the state’s Republican governor and state Senate have been cautious about taking major action this year.

The House proposal released late Tuesday would cut Indiana’s current individual income tax rate of 3.23% over the next four years to 3.0%. That would ultimately reduce state tax collections by an estimated $500 million a year when fully implemented in 2026.

The plan also proposes cuts in several business taxes, potentially cutting those tax bills by between $700 million and $850 million a year.

The proposal comes as officials have estimated that a big jump in state tax collections would boost Indiana’s budget surplus to a whopping $5.1 billion, or 29% of state spending, by the end of next June.

Holcomb and top Senate Republicans have taken a cautious stance on possible tax cuts during this year’s legislative session, saying they are worried about inflation and a possible slowdown in state sales tax collections when federal COVID-19 relief payments end.

House Speaker Todd Huston said Tuesday he would continue to push Holcomb and Senate leaders to support substantial tax cuts.

“I feel strongly that with upwards of potentially $5 billion in reserves and a $2 billion structural surplus that we can do a tax cut responsibly,” Huston said. “We’re not trying to do anything that wouldn’t position Indiana well, not just for 2022, but 2023 and beyond.”

Holcomb said Monday he had an open mind about possible tax cuts but indicated he would rather wait on such a decision until a new two-year state budget is drafted in 2023 and there was more certainty about the economy.

The House Republican plan would cut the property taxes charged on business equipment by nearly $400 million a year, according to legislative staff estimates. Utility company taxes would be cut an estimated $220 million annually, while broadening a sales tax exemption on business equipment purchases could cost between $85 million and $250 million a year.

The proposed changes 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.

House Democratic Leader Phil GiaQuinta of Fort Wayne said money from the state’s surplus could go toward needs such as helping parents pay for child-care expenses and lowering health-care costs. GiaQuinta said adding a child tax credit would also improve the fairness of state taxes.

“This legislative body has passed tax breaks for businesses, RV sales, you name it, but very rarely do we see a real investment in Indiana workers,” GiaQuinta said. “It’s about time to do the same for those low- and middle-income families found in each of our communities.”

Huston said his priority was “giving people back their money.”

“I think that’s the best investment we can make,” Huston said. “Giving it back to Hoosiers and letting them spend it instead of trying to create more government programs.”

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