The (Fort Wayne) Journal Gazette
Republican members of a two-year legislative task force hope conclusions they draw will support elimination of the state income tax, a reduction in Indiana property taxes, or both. But invited guests at the bipartisan panel’s most recent hearing encouraged lawmakers to put a more extensive focus on the property tax system to avoid future short-term budget shortfalls or protracted structural deficits.
Michael Hicks, a Ball State University economist and director of the Center for Business and Economic Research, agrees. Any comprehensive tax reform ought to look at broader issues, such as what funding increases are necessary to reduce Indiana’s high maternal mortality rate — third highest among all states at 44 deaths per 100,000 births in 2022, according to Indiana University’s Center for Research on Inclusion & Social Policy.
“Are we adequately educating young Hoosiers?” Hicks asked The Journal Gazette Wednesday. “Are we competitively funding college education? Are our roads and highways adequately maintained? Are our streets safe enough? Is our water supply clean? Are our cities places that would attract other Americans to live in Indiana? Those questions should help motivate the tax structure debate.”
Sen. Travis Holdman, a Markle Republican and chair of the task force, said he’ll consider any solution when it comes to Indiana’s tax system. “Everything is on the table, and we’ll be glad to hear from taxpayers what they think we should do,” he told The Journal Gazette Wednesday.
Eliminating the state’s income tax is possible, Hicks said. But it would require sales taxes to be 12% or 13%, making Indiana’s regressive tax system even more of a burden on low- and moderate-income Hoosiers, who already pay a higher percentage of their income on sales taxes than their wealthier neighbors.
Legislators accepted that inherent regressivity when they overhauled property taxes in 2008, after the Indiana Supreme Court ruled the old property tax system was in violation of the state constitution’s property tax clause. That set in motion changes throughout the entire system of Indiana local government finance, according to a 2018 report for the Indiana Fiscal Policy Institute by Indiana University’s School of Public and Environmental Affairs.
Sales taxes were increased to 7% — the second highest in the country — to fund local services, programs and property tax relief, and local government authority was expanded to generate revenue from local income taxes. The changes to the tax system led to struggles financing local government and more volatility in the state’s increased reliance on sales taxes, particularly during economic downturns.
Although the elimination of the individual income tax is a “transformational goal” of Senate Republicans, the chair of the State and Local Tax Review Task Force won’t guarantee members will recommend its abolition.
“My fear is that the end product may not meet people’s expectations, and that concerns me a little bit right now,” Holdman told The Journal Gazette in August.
That fear likely was exacerbated by Republican gubernatorial candidates Suzanne Crouch, Indiana’s lieutenant governor, and Jamie Reitenour. Both are advocating the elimination of state income taxes.
Legislators and those seeking public office must realize “Hoosiers are among the least taxed people in the developed world,” Hicks said. The state economy has underperformed throughout the entirety of the 21st century, he said, and the most likely causes are an insufficiently educated population and cities and towns that offer few amenities to attract young people.
In other words, the General Assembly is more focused on cutting taxes than helping Hoosiers prepare for college or the workforce, addressing their addictions and other mental health issues, or ensuring the state’s foster-care system is adequately protecting our powerless children.
In talking now about how changing the state’s tax system might affect spending and Hoosiers’ pocketbooks, lawmakers can determine the feasibility of phasing out income taxes, reducing property taxes or sticking with the status quo. But they must also make sure they’ll have enough future funding to address the educational, health and financial needs of those they serve.
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