Legislature and State Budget and State Government and Taxes and Government & Economic Development and Government

Panel OKs plan to cut Indiana corporate tax rate

February 16, 2011

A proposed cut of more than 20 percent in the state's corporate income tax rate would improve Indiana's business climate without hurting the state budget, the leader of the Indiana Senate's tax committee said Wednesday.

The plan calls for reducing the corporate tax rate from 8.5 percent to 6.5 percent starting in July 2012. Originally, lawmakers proposed cutting the rate to 5 percent but decided on a smaller scale-back because other provisions in the bill would raise $67 million by ending a handful of tax credits and imposing a tax on some bonds, said Senate Tax and Fiscal Policy Chairman Brandt Hershman, R-Lafayette.

"Our goal is to help make Indiana's business-tax climate friendly for job creation and retention while not impacting our overall budget," Hershman said.

His committee debated the plan Tuesday before sending the bill to the full Senate on a 8-2 vote.

Supporters of the proposal said Indiana's current corporate tax rate is among the nation's highest and discourages businesses from moving to the state.

Hershman's proposal includes an estimated $59.5 million annual revenue boost by starting to tax the interest on out-of-state bonds held by Indiana companies and residents and $7 million from the elimination of various tax credits.

The corporate income tax is projected to raise about $688 million — or just over 5 percent — of the state's $13.4 billion in revenue for the coming budget year.

Hershman said about 16,000 small to mid-sized companies based in Indiana would be helped most by the rate cut.

"This is not a bill that primarily helps the Walmarts of the world because they already have the ability to move income to other jurisdictions to limit their taxing structure," he said.

Mark Cahoon, a vice president of the Indiana Manufacturers Association, said the rate reduction to 6.5 percent was significant and would help removing a sticking point in attracting business investment while not cutting into state revenues.

"It is a very difficult balancing act," Cahoon said. "What exemptions, deductions or credits can be reduced or eliminated and not do any harm to the economy but then allows those funds to be used for rate reduction?"

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