Republicans pushed a plan for broad cuts to Indiana’s business and individual income taxes through the state House on Thursday, sending it to an uncertain fate in the GOP-dominated Senate.
House members voted 68-25 mostly along party lines in favor of the proposal potentially cutting more than $1 billion a year in various taxes.
Republican supporters called the plan a responsible way of returning money to taxpayers following a big jump in tax collections helped by federal COVID-19 relief funding that is projected to boost state government’s cash reserves to a highest-ever level of $5.1 billion, or 29% of state spending, by the end of next June.
Democrats criticized the proposal for mostly benefitting corporations and the wealthy rather than using the money to reduce college tuitions, help pay child care expenses and cover high prescription drug bills.
Key parts of the House plan 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 per year when fully implemented in 2026.
The plan also proposes cuts to several business taxes, potentially reducing those revenues by $700 million to $850 million per year.
“This is extra money we’re taking from taxpayers,” said House Ways and Means Committee Chairman Tim Brown of Crawfordsville. “Our job is to give it back if we don’t need it.”
Republican Gov. Eric Holcomb and GOP Senate leaders have raised doubts about taking action on major tax cuts this year, saying they want to wait until the 2023 session, when lawmakers draft a new two-year state budget and will have more information about the economy’s direction after federal COVID-19 relief payments end.
House Republicans voted down proposals from Democrats to modify the bill with steps such as increasing the state’s tax deduction on rent from $3,000 to $5,000 a year, eliminating the sales tax on diapers and tampons, and creating a state tax deduction for child care expenses. Democrats also sought to lower the state’s 7% sales tax rate, which is the second highest in the country, to 6.5%.
Democrats argued that Republicans have used their dominance of the Legislature over the past decade to eliminate the state inheritance tax and enact steep cuts to corporate tax rates while the state needs more action to boost its percentage of college graduates and improve the amenities available in communities to help them attract and keep businesses.
“The choice that you have today with this vote is whether you want to support tax cuts that will predominantly go to corporations and the wealthiest Hoosiers or whether you want to use that revenue to invest in things that help working Hoosier families,” said Democratic Rep. Matt Pierce, of Bloomington.
Republican House Speaker Todd Huston said he will keep making the case to get major tax cuts approved before the scheduled end of this year’s legislative session in mid-March.
Huston said he didn’t believe more government programs and spending would attract more people to the state.
“I feel confident that the people that we represent will take these billions of dollars and spend them on the needs that they have,” Huston said. “Not that we think they have or needs we want them to have.”