INDIANAPOLIS — House Republicans moved forward with their plan to implement $1 billion in tax cuts over the next three years, passing the bill out of committee Wednesday on a 15-7 vote.
The bill would cut Indiana’s income tax to 3% from 3.23%, lower the business personal property tax and eliminate certain utility taxes. Indiana could lose half a billion dollars from the income tax cut alone once fully implemented in 2026.
“The primary emphasis is to decrease that which is being taxed on Indiana citizens,” said Rep. Tim Brown, the bill author.
Brown, R-Crawfordsville, estimated that Hoosiers would see a 1.4% decrease in their utility bills because of the cuts. The 7% cut to the income tax will cost Indiana an estimated $585 million by 2027.
Changes to the business personal property tax will affect local governments directly but is a priority for Gov. Eric Holcomb to make Indiana competitive with neighboring states. Because the cut starts with new purchases and phases in changes for older purchases with state tax credits, municipalities won’t immediately feel the effect.
Jenna Knepper, with Accelerate Indiana Municipalities, which represents cities and towns, appealed to representatives to find a replacement revenue source.
“The business personal property tax is not the optimal way to raise revenues but a critical and important revenue source,” Knepper said. “There needs to be a permanent revenue available to replace it.”
Knepper said the tax repeal would particularly hit small towns with large manufacturing bases.
Ryan Hoff, with the Indiana Association of Counties, used Howard County as an example because the county has a large manufacturing base and relies on business personal property taxes.
“The primary tool that locals will have to replace lost property tax base is local income tax,” Hoff said. “You’re giving up such a large amount of property tax base and … you would be shifting it onto a relatively smaller pool of residents of Howard County.”
Rep. Cherrish Pryor, D-Indianapolis, criticized the bill for not doing more for everyday Hoosiers given the big cuts for businesses.
“I think we owe it to the people — to the voters, to the people who actually live and breathe and have blood in their veins — I think we owe it to them to try to do something to help them,” Pryor said.
She proposed a fund for addressing minority and rural health disparities as well as increasing the earned income tax credit for the poorest of Hoosiers. Both amendments failed.
Brown estimated the earned income tax credit increase would cost $300 million, less than other tax cuts, but considered the cost too prohibitive.
Nearly a dozen other Democratic amendments, ranging from curb cuts for municipalities to capping the gas tax, all failed to garner enough Republican votes to pass.
The proposed tax cuts come after Indiana’s revenue forecast shattered previous predictions again, bringing reserves up to $5.1 billion by the end of the 2022 fiscal year. Increased revenue collections, powered by sales taxes and federal COVID relief funding, further padded the budget.
Republicans don’t uniformly agree on the tax cuts, with Sen. Rodric Bray, Senate pro tem of Martinsville, previously warning against opening up the budget in a nonbudget year. Holcomb also declined to support the cut but said he would listen to any suggestions.