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Last updated: Thu. Feb. 07, 2013 - 09:03 am EDT


Income tax cut crucial, Pence says

Lower rate will keep Indiana competitive, governor argues

INDIANAPOLIS — Gov. Mike Pence on Wednesday renewed his push for a state income tax cut, pointing to Ohio and other states that are moving ahead with similar proposals.

“We’re not operating in a vacuum,” he said. “There is stiff competition for investment and jobs.”

Pence said Nebraska and Louisiana have announced major income tax reform in the last two weeks and Ohio Gov. John Kasich joined the fray Monday.

Kasich wants to reduce the tax rate on virtually all Ohio small businesses by 50 percent; cut the income tax rate statewide by 20 percent over three years; and lower the sales tax rate from 5.5 percent to 5 percent. His proposal would deliver $1.4 billion in tax relief over three years. The cuts are covered in part by expanding the state sales tax in Ohio to professional services such as lawyers, accountants and more.

Pence is asking for a 10 percent cut in the individual income tax rate, from 3.4 percent to 3.06 percent, over two years. It would cost the state about $500 million a year when fully implemented.

“We are in a competition. Indiana is in the pole position, but other states are not standing still,” he said.

Legislative leaders have expressed concern about whether Indiana can afford the tax cut while also fully funding education and other priorities.

“There is no sense lowering a tax just to raise it later,” said Sen. Luke Kenley, R-Noblesville, the Senate’s budget broker.

“Right now Indiana is a low-to-moderate income tax state, but we do have to watch what states are doing,” he said. “Philosophically, I like to reduce or control taxes, but I don’t know if we are able to do it with our budget constraints right now.”

Pence argued that his budget proposal funds schools and roads and shows “we are able to permanently lower the personal income tax rate without any other change in our revenue structure.”

His budget gives minimal annual increases to K-12 and higher education funding after years of cuts to the institutions.

House Speaker Brian Bosma has also suggested the Pence tax cut would further shift the state’s reliance to sales tax, which has one of the highest rates in the country at 7 percent.

Pence wouldn’t address the sales tax imbalance, simply saying he believes lowering income taxes will create jobs.

The governor also made clear Wednesday that he does not support eliminating the automatic taxpayer refund put in by former Gov. Mitch Daniels. Some legislators have suggested tat it would have to be abolished for a permanent tax reduction to be implemented.

The refund kicks in when Indiana reserves rise to certain target levels. This year, taxpayers will receive $111 each or $222 for a married couple filing a joint return.

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