State Rep. Tim Brown, R-Crawfordsville, the sponsor of House Bill 1002, speaks Thursday in the House chamber in favor of the tax cut legislation. It passed 68-25 and now goes to a skeptical Senate. Screenshot
The Republican-controlled House voted 68-25 nearly along party lines Thursday to approve a substantial tax cut for Indiana businesses that also provides limited tax relief to Hoosier workers.
But no one in the state, whether business or individual, probably should start spending their tax cut money now.
House Bill 1002 faces strong opposition in the Republican-controlled Senate where lawmakers are inclined to wait until 2023 to consider tax cut legislation on the chance that Indiana's record-breaking revenue is a mirage created by record-breaking federal spending.
Republican Gov. Eric Holcomb likewise only has endorsed a minor change in how a tax paid by businesses on their manufacturing and production equipment is calculated. He so far has declined to say whether he supports the other components of the House tax cut plan.
None of that mattered in the House chamber where Republicans celebrated the opportunity to return to taxpayers a meaningful chunk of the estimated $5.1 billion in revenue the state expects to collect over and above what it's due to spend through June 2023.
"This is extra money we've taken from the taxpayers. So our job is to give it back if we don't need it," said state Rep. Tim Brown, R-Crawfordsville, the sponsor of the measure.
House Speaker Todd Huston, R-Fishers, even briefly departed his rostrum position presiding over the chamber to speak from the floor about what he considers "a great bill" and a "reasonable down payment on tax relief for Hoosiers."
"Who do you believe is a better steward of their money? Is it us or the people we represent?" Huston asked.
"We'll continue to make smart, strategic investments in government programs. But if you think government spending is going to attract people, I'll show you Illinois."
The legislation reduces the property taxes Indiana companies pay on manufacturing and other business equipment, exempts more production inputs from the 7% state sales tax, and eliminates the utility receipts tax paid by both businesses and consumers on their electric bills.
The nonpartisan Legislative Services Agency estimates the legislation, when fully implemented, will reduce state revenue by approximately $1.2 billion a year, with about two-thirds of the tax benefits going to businesses.
The initial cost of the tax cuts will be covered by rescinding a provision of the 2022-23 state budget that would have deposited $2.3 billion in excess budget reserves in a teacher pension account and instead keep that money in the state's general fund.
Records show Indiana already is due to deposit $545.5 million in the Teachers Retirement Fund, on top of the state's statutorily required contribution, as part of the automatic taxpayer refund triggered by excess state reserves at the June 30 end of the 2021 budget year.
Under Indiana law, another $545.5 million will be returned to Hoosiers as a one-time payment of $125 per person that's scheduled to be distributed in late April or early May.
The legislation also would return additional funds to Hoosiers in future years by gradually reducing the state's personal income tax rate to 3% in 2026 from the current 3.23%.
Under the plan, the rate would drop to 3.15% in 2023, 3.10% in 2024, 3.05% in 2025, and ultimately to 3%.
That means a Hoosier earning $50,000 a year would see their current, unadjusted annual state income tax burden of $1,615 drop to $1,575 in 2023, $1,550 in 2024, $1,525 in 2025, and $1,500 in 2026.
House Democrats argued that money could be put to far better use by the state compared to giving Hoosier workers an extra $25 a year, or about a buck a paycheck, that probably won't make a meaningful difference in their lives.
For example, state Rep. Carey Hamilton, D-Indianapolis, said using the state's excess revenue to fund accessible, affordable child care would enable more Hoosiers, particularly women, to return to the workforce — alleviating the inability of Indiana businesses to find sufficient employees for all their available positions and getting more money flowing through the economy to help everyone else.
"This is one of the most fiscally irresponsible bills I've seen as a member of this Legislature," Hamilton said.
Similarly, state Rep. Ed Delaney, D-Indianapolis, said using the tax cut money to instead reduce college tuition rates, eliminate school textbook rental payments, zero out the sales tax on diapers and feminine hygiene products, or combat drug abuse would do far more good for Hoosiers than boosting the already bulging bottom lines of most Indiana companies.
"This bill is about what we value and what we don't value. And apparently we value tax cuts above all," Delaney said.
"We're going to lower the tax on augers, but not the tax on diapers. I will not refer to the fact that an auger also could be called a screw."
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