Indiana lawmakers gave final approval early Wednesday morning to a Republican tax-cut package that would gradually reduce state income taxes over the next seven years, but they failed to reach agreement on cutting the business personal property tax.
House Bill 1002 cleared the Senate unanimously and then the House by a vote of 82-17, ending this year’s legislative session and a two-month divide between House and Senate Republicans over whether or how to cut taxes.
The measure now heads to Republican Gov. Eric Holcomb, who is expected to sign the bill into law after expressing support for the income tax cuts last week despite earlier reluctance.
The GOP-controlled Legislature settled on adding language to the bill to include Holcomb’s request to reduce the individual income tax rate from 3.23% to 2.9% in phases over seven years. The bill also would eliminate the utility receipts tax. Together, once fully implemented, the cuts would cost the state around $1.1 billion.
But lawmakers in the two chambers could not come to an agreement on eliminating the minimum tax businesses pay for new equipment, and that provision was removed. Businesses pay a tax on at least 30% of the purchase price of machinery and equipment every year, even if the equipment is several years old.
Many Senate Republicans opposed the move over concerns that it would cut revenue to local governments and that doomed the proposal despite heavy support from the governor, House Republicans, the Indiana Chamber of Commerce and the Indiana Manufacturers Association.
Not even all of the income tax cuts would be automatic over the next seven years.
The plan would cut the tax rate to 3.15% for 2023, which would amount to a $40 savings for those with $50,000 in taxable income.
The tax rate would then be cut further in 2025, 2027 and 2029, but only if state tax revenue grows at least 2% in the previous budget year. If all the income tax cuts are implemented, they would amount to a 10% cut over seven years.
The controlled phase-in appeared to be a nod to Senate Republicans, who expressed hesitancy about tax cuts throughout the legislative session amid concerns about inflation and a possible economic slowdown.
“It’s not a win for the Senate or the House,” said Senate President Pro Tem Rodric Bray, R-Martinsville. “This is a collaborative effort. And we found a way forward.”
House Speaker Todd Huston, R-Fishers, said the business personal property tax might be up for debate again next year.
“We’ll keep taking another bite of that apple again next year. It’s important that we do it, but I’ve got to convince, got to do a better job convincing folks across the hall,” Huston said.
He still lauded the bill as a success, even without getting every cut from the original House proposal.
“The Senate has a belief, and so do we, about being responsible about paying debt. We wanted to get some of [the tax cuts]. We were able to get a substantial portion of it,” Huston said.
The tax-cut package also reduces utility company taxes amounting to an estimated $220 million annually starting in July, with utilities required to reduce charges by a similar amount to their residential and business customers. Bill author Rep. Tim Brown, R-Crawfordsville, said the cut would amount to a 1.4% reduction for every utility-payer.
Democrats were critical of the overall Republican plan for not having a more immediate and significant impact.
House and Senate Democrats had called for the same 10% income tax rate reduction, but over four years instead of seven. Their proposal also included a three-month moratorium on the 7% sales tax on fuel and the 32-cents-per-gallon gas excise tax through July in light of soaring gas prices.
House Democratic leader Phil GiaQuinta of Fort Wayne said Republicans made a “big mistake” in not including the gas tax moratorium, saying it was a relief Hoosiers needed now.
Rep. Ed DeLaney, D-Indianapolis, called the tax-cuts plan “small potatoes,” and said he could not believe it took this long to get to only one guaranteed reduction of 0.08 percentage point in the first income tax rate phase-down.
“We won’t be proud to say we’re giving back 40 bucks … most people in my neighborhood will take that 40 bucks and say, ‘Please keep it and fill a pot hole, or lower tuition at our university,'” DeLaney said.
The Associated Press contributed to this report.