INDIANAPOLIS (WISH) — 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.