Republicans in the Indiana House passed their $1 billion individual income and business tax-cut proposal Thursday on a 68-25 party-line vote, sending it to the Senate, where its future is murky.
House Bill 1002 is one of House Republicans’ flagship bills and authored by Ways and Means Chair Rep. Tim Brown, R-Crawfordsville. It would cut four separate taxes—individual income, business personal property, sales and the utility receipts tax.
HB 1002 would reduce the individual income tax rate from 3.23% down to 3% by 2026.
For the business tax cuts portion, it would exempt the minimum tax on business personal property after Jan. 1 for new equipment purchased by businesses, also known as the 30% depreciation floor. The law now requires businesses to 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 and no longer worth 30% of its original cost.
In addition, the bill also would let businesses apply for a state income tax credit for taxes paid on existing business personal property where the 30% floor is still applied starting in 2025. The cost to the state for that would be $347 million in 2025 and $392 million in 2026.
Regarding the sales tax, the tax proposal would remove the double direct test applied in production sales tax exemptions, which could save businesses between $86 million and $249 million a year.
Democrats argued on the House floor on Thursday that generally the proposed cuts benefit corporations more than individuals, and said instead of cutting taxes, the state should prioritize investing that $1 billion in other areas, such as funding child care access or paying for public school textbook fees.
“The choice you have to make today is do we once again reward those who are prospering the most … with even more tax cuts, or do we take that money and invest it in things that actually help working families?” Rep. Matt Pierce, D-Bloomington, said.
House Speaker Todd Huston, R-Fishers, spoke in favor of the proposal. He said Republicans and Democrats philosophically disagree on the issue of what investing in the state means.
Huston said the tax cuts are a “responsible down payment” on providing relief to taxpayers, and the state will continue to invest in responsible government programs. He added that government spending is not going to attract more people to the state.
“Who do we believe is a better steward of our money? Is it us? Or is it the people we represent?” Huston said.
HB 1002 will head to the Senate for consideration, where GOP leaders there are more hesitant about cutting taxes. Senate GOP leaders have urged caution on the issue to see how the state fares following an influx of federal pandemic relief dollars coming in, and concerns that inflation could slow consumer spending and sales tax collections.
The tax-cut discussion has been prompted by the state’s rosy financial condition. A December revenue projected state government would have a $5.1 billion reserve at the end of fiscal year 2022, and $4.1 billion after 2023.