Indiana’s surging state tax collections have the governor in discussions on whether tax cuts should be considered during the upcoming legislative session.
Republican Gov. Eric Holcomb told reporters Thursday “we shall see” when asked about the tax cut possibility.
Some top Republican legislators have been talking about proposing reductions to Indiana’s 7% sales tax and other taxes for the new legislative session starting in January, even amid concerns over the possibility of an economic slowdown.
Holcomb acknowledged the state’s revenue growth is certainly influenced by federal COVID-19 relief spending.
“But we do know that the economy is growing across multiple sectors,” Holcomb said. “The revenue is coming in.”
State government saw overall tax revenue grow 14% during the last budget year as collections bounced back stronger than expected from the COVID-19 pandemic recession, pushing its cash reserves to $3.9 billion as of June 30. Tax revenue has kept growing, with the state collecting about $560 million, or 10%, more than expected during the four-month span through October.
The size of the state surplus is triggering Indiana’s automatic tax refund law, with about $545 million being divided evenly among taxpayers through an estimated $170 credit on state tax returns submitted next year.
Holcomb said a factor in the tax cut debate will be trying to gauge when economic growth naturally slows and how cutting taxes will affect future state revenues.
“You can’t also ignore that we are taking in more revenue at this time and so this will be a discussion that I know will occur,” Holcomb said.
The state’s two largest sources of revenue are the sales tax and individual income.
Indiana’s 7% sales tax is among the highest in the country and greater than any surrounding state. Cutting a full percentage point off that tax rate would cost about $1.2 billion, according to the Indiana Office of Management and Budget.
Lowering Indiana’s individual income tax rate to a flat 3% from the current 3.23% would cost about $400 million annually. Indiana’s income tax rate is the lowest of all neighboring states.
8 thoughts on “Indiana governor says ‘we shall see’ on possible tax cuts”
For those who are on a fixed income small enough to not pay any state income tax, a $170 tax credit will not benefit those who need it most.
A cut in the state sales tax would reach everyone, and would be easy to repeal should future economic conditions require it.
Richard, I agree that that $170 or the less amount few years back is not meaningful to a large portion of the population, especially those that don’t meet it. Unfortunately, this is now a law from when Gov. Daniels instituted it. Whereas allowing us to sit on it – since most economic cycles don’t constrain to a year or more – allow the State to have a rainy day fun to hedge future downfalls or double down on investments like infrastructure to keep our people employed.
Or we could just use extra money to make on-time investments in in the state?
Cutting the tax may not be the wise choice aa the economy changes. The current surplus could be held to mitigate against [inevitable] future deficits. Or, surplus funds could be held to use as local match for infrastructure improvements from the recently passed federal bill (allocations will be based on project justification on a nationwide competitive basis). Or, provide a refund (but based on what calculation)
Giving the money back instead of investing in the future is an admission that our current leadership doesn’t care or doesn’t believe in the future of the state of Indiana.
The state should use extra money and double down on three areas:
3) regional investment programs like READI
It never cease to amaze me on how a few people can decide how best to spend the majorities money.Im not sure there’s no perfect way of doing anything in life but taxes and how to spend or not to spend money is always a hot topic.
We let Bob Behning run education policy in this state and he’s a retired florist.
Kevin P. – looks like we should invest in teaching people proper grammar and punctuation so that their comments on newspaper articles would pass muster.