When Indiana legislators passed a package of business tax breaks last year, it’s a good thing they made them optional for counties.
A year later, it turns out no counties really wanted them. Not one of Indiana’s 92 counties has adopted the tax breaks the lawmakers made available.
It appears the reason is that counties can’t operate without money, regardless of how attractive that might sound to state leaders.
The Legislature allowed counties to eliminate taxes on new business “personal property,” which basically translates to equipment.
Gov. Mike Pence said the tax discourages businesses from growing. He wanted the Indiana General Assembly to phase it out.
Instead, legislators followed their recent trend of leaving key decisions up to local units of government.
Local leaders warned they couldn’t afford to cut the equipment tax, which reportedly brings in $1 billion across the state for cities, counties, schools, townships, libraries and fire departments.
In the weeks leading up to the 2014 session, key legislators said they worried about cutting the tax without finding any way to replace the money it brings in. But they passed the tax cut anyway, without any solution to the loss of income for local government.
Supporters of the plan said it would create healthy competition between counties to see which ones would offer the best tax incentives to businesses.
Competition inspired the tax cut idea in the first place, because some of Indiana’s neighboring states have eliminated the tax on business equipment.
Critics of the tax cut feared some counties would feel pressure to reduce the business equipment tax, even though they couldn’t afford to do so. The competition between counties would not be on a level playing field. Some counties have numerous factories, which pay the bulk of the equipment tax. Cutting back the tax could cripple those counties, while it might not harm neighboring counties’ budgets as seriously.
The idea of ever-increasing tax cuts forms one pillar of conservative philosophy. But it’s also good conservative philosophy to maintain roads, government buildings and equipment in sound condition and provide essential services competently.
Businesses like tax cuts, but they also want to operate in communities where the streets are smooth, the utilities work properly and emergency responders come quickly when called.
A little budget belt-tightening can force local governments to think creatively and run more efficiently. But there are limits to that strategy if budget cuts become crippling.
Fortunately, even without a cut in business equipment taxes, Indiana already ranks in the nation’s top 10 states for business tax climate, according to the Tax Foundation.
Pence has adopted a slogan proclaiming Indiana as “A State That Works.”
Before we try to climb even higher in the tax-friendly ratings, we should check to see if basic services still are working in the states that rank above us. In the zeal to reduce taxes, we have to beware of trimming muscle instead of fat.
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