When Indiana Governor Mike Pence was campaigning last year, a centerpiece of his campaign was a regressive 10 percent cut in the state’s already low personal income tax rate It now appears that the Governor has convinced legislative leaders to agree to a tax cut about half that size, though it won’t be fully implemented until the end of his current term as Governor in 2017.
A new analysis from the Institute on Taxation and Economic Policy (ITEP) shows that while this new agreement is more modest than Governor Pence’s original proposal, its impact on the distribution of Indiana taxes is similar. Namely, most of its benefits will flow to the state’s wealthiest households. ITEP analyzed the effect that this agreement would have had on Indiana residents’ tax bills if it were in effect for 2012—the year for which most households just finished filing their tax returns. When this plan takes full effect in 2017, the size of the tax cuts will be slightly larger, but their distribution will be roughly the same. Among other things, ITEP found that for 2012:
- Cutting Indiana’s personal income tax rate to 3.23 percent would reduce the tax bill of the richest 1 percent of Indiana households by an average of $1,181.
- That same cut in the state’s income tax rate would reduce the average tax bill of middle-income households by just $56.
- Low income households fare worst of all. The recently announced agreement would amount to a tax cut for the poorest 20 percent of Indiana households of just $10 on average in 2012, and roughly one in three members of this group would receive no tax cut at all.
Read the report here.