Republican lawmakers divided over prospects for tax cuts in Indiana

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INDIANAPOLIS (AP) – Indiana’s rapidly growing tax collections have some Republican lawmakers looking to push through tax cuts in the next legislative session, even though the move faces skepticism.

The debate is a significant turnaround from a year ago, when the pandemic COVID-19 recession prompted state officials to fear sharp cuts in tax revenue. But an economy boosted by federal coronavirus relief spending has prompted the Republican leader of Indiana House to say tax cuts are a “huge priority goal.”

Republican House Speaker Todd Huston on Monday said he expected the GOP-controlled House to support cuts to the state’s 3.23% personal tax rate or expansion of credits to reduce income taxes owed. Huston said a proposal would be finalized after an updated state revenue forecast was presented to lawmakers in about a month.

“We will have a bill that will ensure that we return Hoosier taxpayer money,” Huston said a day before the annual Legislative Organization Day meeting ahead of the legislative session beginning in early January.

Republicans who have dominated the state Senate, however, plan to “proceed with extreme caution” when it comes to tax cuts, Senate Majority Leader Mark Messmer of Jasper said.

Indiana has seen significant increases in sales tax collections, which account for about half of the state’s general government revenue, but Messmer said no one can reliably predict what will happen with these. collections when federal relief spending ends.

The state government saw its overall tax revenues increase by 14% in the last fiscal year, as collections rebounded more strongly than expected, bringing its cash reserves to $ 3.9 billion as of June 30. Tax revenues continued to grow, with the state raising about $ 560 million, or 10%, more than expected in the four-month period to October.

The size of the state’s surplus triggers Indiana’s Automatic Tax Refund Act, with an estimated $ 545 million evenly distributed among taxpayers thanks to an estimated $ 170 credit on tax returns from the ‘State submitted next year.

Republican senators would probably prefer to wait until the Legislature draws up a new two-year state budget in 2023 before deciding to cut taxes, rather than relying again on the tax refund law if the Collections remain strong, Messmer said.

“That would probably be our preference, but obviously we’ll look at the revised forecast in December and consider whatever the House sends us, but we don’t plan to cut taxes at this time,” Messmer said.

Republican Gov. Eric Holcomb also seemed cautious last week, saying “we’ll see” when asked about the possibility of lowering taxes.

While the head of the House Budget Drafting Committee wants to consider expanding the state sales tax to include more spending on services to reduce the rate by 7%, Huston said he believes cuts in personal income tax and property tax on commercial equipment were more likely steps.

Indiana’s 7% sales tax is one of the highest in the country and higher than any surrounding state. According to the Indiana Office of Management and Budget, reducing that tax rate by one percentage point would cost about $ 1.2 billion.

Lowering Indiana’s personal income tax rate to a fixed rate of 3% from the current 3.23% would cost about $ 400 million per year. Indiana’s income tax rate is the lowest of any neighboring state.

Democrats suggest that growth in state revenues should go towards measures such as increasing the $ 3,000 annual limit on tax deductions for tenants and increasing subsidies for child care expenses. children. These are unlikely to gain the support of Republicans, which has led a top Democrat to also suggest waiting to see what happens with the economy in the coming year.

“I think we should just sit on that reservation,” Democratic Rep. Terri Austin of Anderson said. “It won’t hurt.”


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