The nation is watching Indiana’s tax debate, according to Tim Phillips, national president of the anti-tax group Americans for Prosperity. But the outcome that Phillips is looking for —a regressive cut in the state’s personal income tax—is facing an uphill battle. The Indiana House, under supermajority Republican control, chose not to include Governor Pence’s proposed tax cut in its budget. Senate leadership has yet to embrace the tax cut either, and the state’s largest newspaper recently editorialized against the plan, explaining: “What holds back faster economic growth now is less about taxes than the lack of a well-educated workforce and higher than average business costs associated with Hoosiers’ poor health.”
But despite all this resistance, Americans for Prosperity is determined to gin up some interest in cutting Indiana’s income tax rate. The Indiana chapter of the group announced that it will spearhead a major TV, radio, online advertising, and door-to-door campaign. As Phillips explained, “In Washington, it’s gridlock and really that’s not where the action is.”
There's reason to hope this campaign doesn’t pressure lawmakers into enacting a tax cut against their better judgment, though. In a letter to state GOP officials, House Speaker Brian Bosma recently made a compelling case against the cut and offered a warning about the dire consequences that could arise from following Kansas as it staggers and stumbles down its own tax-cutting path (excerpt below):
“With respect to the Income Tax cut proposal, legislative leaders have expressed caution on this issue for a variety of reasons, which I want you to understand. First, in 1998, the last time the state had a $2 billion surplus, a series of Income Tax and Property Tax cuts coupled with an unexpected downturn in the economy turned that surplus into a $1.3 billion deficit in a short six year period. When Republicans regained the majority in 2004, our first order of business was to fill that hole through cuts (and not tax increases), and we did it. It was painful and difficult, but we knew that the most important job of state government is to be lean, efficient, and most importantly, sustainable in the long run, avoiding wild shifts in one direction or another. That uncertainty of big shifts leads to uncertainty for business investment and family security. With pending sequestration, looming federal mandates and an uncertain national economy on the horizon, caution is certainly advisable.
“Finally, the Governor cites the recent experience of Kansas in cutting income taxes last year under the leadership of Governor Sam Brownback. I would encourage you to get online and see what is going on in Kansas right now, as news reports abound of projected deficits, delays in proposed tax cuts, and lawsuits for underfunding public education. This is just the type of economic unpredictability and unsustainability that we hope to avoid here in Indiana.”