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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowThe five Republican candidates vying to become the next governor of Indiana are weighing in on the topic du jour among conservatives in the Indiana Legislature: whether to eliminate the state’s personal income tax.
Lt. Gov. Suzanne Crouch announced a plan Thursday to “axe the tax,” which she said would help Hoosier families and small businesses while helping to attract companies to move or expand here.
“I can guarantee you that the radical left, big-spending bureaucrats and special interest groups will scream bloody murder and claim we can’t eliminate the personal income tax,” Crouch says in a campaign video as a garbage truck unloads piles of U.S. currency onto a family’s sidewalk. “That’s because they believe they can spend your money better than you can. But that money’s not theirs, it’s yours, and you’ll always spend it more wisely, and as governor, I’ll make sure you get it.”
Indiana collected almost $8.2 billion in individual income taxes in fiscal 2022, accounting for roughly one-third of the state’s overall tax revenue.
Crouch said the loss of income taxes could be absorbed by instituting a number of measures, including by returning budget and reserve fund surpluses to taxpayers that are “beyond necessary levels:” modernizing the state’s tax code; limiting the growth and cost of Indiana government to necessary levels; and limiting expenditures to a 2% inflation adjusted growth rate.
But other states that have eliminated their income tax have had to offset the losses by raising property taxes, increasing sales tax rates or taxing services, or creating a new tax altogether.
In Alaska, a state that repealed its income tax in 1980, a severance tax on the oil and natural gas industry keeps the government solvent, while Texas has higher-than-average property tax rates, and Florida brings in billions of dollars a year in tourism development taxes. Tennessee has the same state sales tax rate as Indiana at 7%, but local jurisdictions can enact their own sales tax, making the rate as high as 10% in some places.
Crouch’s announcement comes one day after a panel of lawmakers, budget analysts and policy experts held the first of many meetings that will take place over the next two years that will examine whether the state can absorb the cost of getting rid of a revenue source that brought in more than $8.2 billion in the 2022 fiscal year.
The task force on Wednesday heard testimony from Americans for Prosperity, a libertarian conservative political advocacy group funded by Charles and David Koch, as well as former Republican State Sen. Brandt Hershman, who served from 2000 to 2018 and was majority leader of the Senate for his last six years in office.
Sen. Travis Holdman, who chairs the State and Local Review Task Force, said that he would like to see Indiana repeal the income tax by 2030 to help Indiana compete with states like Florida, Tennessee and Texas that don’t have a state income tax and have experienced economic and population growth in recent years.
“Indiana has done a great job when it comes to competing nationwide with our sister states, especially those in the Midwest,” Holdman said Wednesday. “Nevetheless, we cannot be content to lead the pack, kick back and say, ‘Look how good we are.’ To stand still and maintain the status quo means we will be passed by in a few short years when other states do as we have done in the past and move beyond us.”
U.S. Sen. Mike Braun said lawmakers need to determine how to replace the revenue source before coming to a decision, noting that states like Tennessee have an abnormally high sales tax while Texas has inflated property taxes.
Brad Chambers, the former Indiana secretary of commerce who stepped down from his position earlier this month to run for governor, declined to comment through a spokesperson.
Eric Doden, the Fort Wayne businessman who was the first to enter the governor’s race two years ago, said he supports reducing taxes on Hoosiers in a way that doesn’t take away funding for infrastructure, public safety and schools.
“I’m cognizant that the state surplus was already halved from $6 billion to less than $3 billion the last two years,” Doden told IBJ. “I’m concerned that the ‘axe the tax’ plan axes resources to help taxpayers in our small towns and hometowns plagued by fentanyl and mental health crises, which will be my No. 1 priority as governor.”
Curtis Hill, the former Indiana attorney general who lost his re-election bid after allegations surfaced that he groped four women at an event in 2018, questioned how Crouch would replace the loss in revenue.
“From mask mandate to progressive government offices, Crouch has willingly embraced Gov. Holcomb’s liberal agenda,” Hill posted on X on Thursday. “Nice conservative talking points, but no conservative solutions.”
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To axe the state income tax while continuing to keep other taxes low is to bankrupt The State and erase the work/legacy of Mitch Daniels.
There is something to be said about The State prioritizing low business taxes over low taxes for individuals and families. That has been a problem. Indiana families have an above-average tax burden in a state with a relatively low average incomes and a relatively high cost of living. It’s a problem.
Cutting spending to nix the state income tax is a silly proposal. The State barely spends enough money as it is. We should be investing a ton of money into policy and infrastructure to support good land use and a high quality of living – which would pay off with higher property values and higher incomes – but we just keep blowing money on maintaining existing infrastructure & building new infrastructure that is “cheap” in terms of initial investment required, but very expensive when it comes to the amount of investment that it attracts and its ability to be maintained in perpetuity with tax revenue. Building I69 south of Indy, for example, is destined to be a liability in perpetuity.
Explain how I-69 is a liability but 65 or 70 aren’t.
I’ve always said you get what you pay for. Kansas had some of the lowest taxes of any Republican State in the US and it shows. Crumbling roads, poor services, and crumbling infrastructure, and bad schools. Guess what? People still move to the coasts where taxes are high, but the parks are nice, streets are drivable, and schools do a good job. They don’t move someplace because the taxes are low.
In addition, Indiana has some of the most regressive tax policies in the US. Income tax absolutely makes sense, but a flat tax with few or no exemptions hurts most lower income Hoosiers. Like the Federal tax, it needs to be graduated so that those that can afford to pay, do.
I’m still pissed that Indiana mailed somebody at my income level, a “surplus” tax check rather than finding a meaningful and useful way to spend the money. Just increase the road funding allocation, and cites and counties across the state would be working at getting sub-par bridges repaired, or repaving roads.
I am also leery that this just another way to take a whack at all of Indiana’s big “Democratic h4ll-hole” cities, by cutting off any of the revenue that used to get shared from the state income tax.
Without state income taxes, two appealing tax credits for wealthier Indiana residents will become less impactful and will have long-term consequences. The investment in research and development, made popular with the R&D tax credit (a tool for many small businesses, both C corp and S corp), will be significantly impacted with the elimination of state income taxes. In addition, Scholarship Granting Organizations, a key element in the school voucher program, will be rendered worthless. Many private schools are reliant on SGO dollars to help bridge the gap between voucher dollars and tuition costs. Without SGO dollars, these privates schools will struggle to provide a seat for many of the lower income students helping to fill seats today. How about the 529 college savings plan? While it will still have value in the tax-exempt investment growth, the tax benefit for annual contributions will also be eliminated without state income tax.
The percentage of state & local tax collections by source in Indiana (https://taxfoundation.org/data/all/state/2023-state-tax-data/): Property 24.3%, General Sales 25.8%, Individual Income 30%, Corporate Income 2.4%, Other 17.5%. Pretty nicely spread out (except for Corporate Income). The states mentioned (FL, TN, TX) all replace individual income tax with something else. For property tax, TX ranks 38th, TN 33rd, FL 12th, IN 2nd. For Sales Tax TN ranks 46th TX 37th, FL 21st, IN 19th. For individual income tax: IN ranks 15, TX 7th, TN 6th, FL 1st. For corporate income: TX ranks 47, TN 45th, IN 11th, FL 10th. Nothing is free and state spending rarely if ever goes down. Crouch does not propose decreasing spending, just limiting its increase. So, eliminating 30% of the state’s revenue will still mean the loss will have to be filled in from somewhere: increased property taxes (disadvantage property owners), general sales tax (disadvantage lower income earners that spend a higher percentage of income on necessities), or corporate income tax (never happen). The individual income tax is the only “progressive” tax we have. The more you earn, the more you pay, and it applies to everyone. It is somewhat regressive since it is a flat tax, but less so than sales tax. Indiana’s Overall Business Tax Climate Index is 9th in the nation, better than TX (13th) and TN (14th). FL is 4th, but there are many other reasons that people move to FL other than taxes, reasons that IN does not have.
Indiana’s state sales tax is too high now. And is actually higher than the stated rate because the state collects the sales tax before any discounts, rebates or coupons are applied to the purchase.
Unless the state significantly slashes spending, there is no way to eliminate the state income tax without significantly raising other taxes and fees. Other commenters here have accurately noted that the state is already miserly in spending on education, environmental protection, infrastructure, and other quality of life concerns. The result has been and continues Indiana sits near the bottom of state rankings (along with such stellar performers as Mississippi, Alabama, and Louisiana).