House backs off Pence plan to cut higher ed tax credit

The Indiana House is dropping one unpopular part of Gov. Mike Pence’s proposed tax overhaul – and another key section is in jeopardy.

House Speaker Brian Bosma, R-Indianapolis, said Thursday the House won’t grant the governor’s wish to eliminate a tax credit for Hoosiers who donate money to universities and colleges in the state.

?And a tax break Pence has pitched for Indiana businesses won’t happen, Bosma said, if the price tag is as high as a bipartisan legislative research agency has projected.

“The higher the tab, the more unlikely it will happen this session,” Bosma said.

Both proposals are part of House Bill 1349, which is meant to simplify the state’s tax system in part by eliminating some deductions and credits and eliminating provisions that lead to legal discrepancies.

The higher education provision is part of the section of the bill that eliminates credits and deductions. The credit subtracts up to $100 from an individual’s state tax bill or up to $200 for a couple that donates to a college. The credit costs the state about $9 million annually.

But Bosma said it’s worth the money. Bosma said he and his wife both took advantage of the credit early in their marriage to give a little money to their alma maters. He said they didn’t have much money at the time and it made the contributions much easier.

“It’s an important policy and it shouldn’t go away under the guise of tax simplification or paying for another tax cut,” Bosma said.

And the tax cut with the biggest price tag is the so-called “double direct” provision. Current state law essentially requires companies to pay a sales tax on materials or equipment they purchase unless they are used in the direct creation of a product. For example, a farmer who purchases a drainage tile to keep water in the fields for crops doesn’t pay the tax but a farmer that buys a tile to drain water from a field would.

HB 1349 loosens the qualifications for the tax break, so that more purchases would be tax exempt. Andrew Berger, a lobbyist for the Indiana Manufacturers Association, told lawmakers on Wednesday that would be “very helpful to manufacturing.”

But how helpful is a question.

The governor’s office – which backs the legislation – estimated the change would reduce state tax revenue by about $35 million, a cost that was offset by other provisions that would increase revenue, including the elimination of the higher education credit. But an estimate by the non-partisan Legislative Services Agency says the cost could actually top $200 million annually.

Bosma called that “a horse of a different color” and said it’s not what he had in mind when the governor’s office approached him about backing tax simplification legislation.

The estimates have led to private talks between the governor’s office and legislative staff about why the numbers are so different. Senate President Pro Tem David Long, R-Fort Wayne, said on Thursday that leaders have asked LSA to take a second look at the projections.

“But if LSA comes back and says: No, we’re very confident in these numbers, we’re going to go with those numbers,” Long said. “I will trust those.”

And Bosma said that could be enough to end discussions about that tax cut – at least for this year.