INDIANAPOLIS — Indiana Gov. Mike Pence declined to discuss specifics Thursday on ongoing negotiations between his administration and lawmakers on a proposed business tax cut.
Pence said while he supports plans to reduce the business personal property tax passed by the Indiana House and Senate, his administration is in discussions on ways to improve the Republican-led proposals.
Pence said his administration is listening to mayors across the state, several of whom have come to Indianapolis advocating for a way to replace the revenue their communities will lose if the tax is reduced.
“We are looking at a broad range of options to give communities the ability to meet their needs and not face hardship because of this reform,” Pence said.
Both the House and Senate plans reduce a portion of the tax businesses pay on machinery and equipment. The House’s plan would allow counties to exempt the tax from new investments. The Senate’s plan eliminates the tax for small business owners and makes an additional reduction to the state’s corporate income tax. Neither plan currently offers replacement revenue for local government.
Evansville Mayor Lloyd Winnecke has said he wants the state to provide a mechanism to replace revenue to local governments and schools. Pence maintained the personal property tax is a local revenue stream when asked about replacement revenue on Thursday.
“As I go into this, I want to think about ways that we can make it possible for local communities to continue to meet their obligations with local revenues,” Pence said.
Pence said that a primary objective in beginning a phase out of the tax is to make Indiana communities more attractive for investment and “thereby more prosperous in the future.”
Yet, a report by the Indiana Fiscal Policy Institute released Thursday pointed to studies showing the tax has a “small effect” on businesses choosing to relocate from outside a state. Other factors, including transportation infrastructure and employee skills and pay, also are weighed, according to the report.
“Research on the effects of taxes on development is not precise, but most studies find the effects to be relatively small. The associated reductions in public services valued by businesses might also limit the effects on development,” according to the report.
Pence said while he hadn’t read the report yet, the broad conclusions he had been briefed on show that tax policy is a factor, particularly in regional economic development.
The report also found that any reduction in the personal property tax would result in higher taxes to other property owners, such as homeowners and commercial property owners. In those shifts, Indiana’s property tax caps complicate the issue because they could cause greater losses for local governments, according to the report.
The report provides a handful of options to replace revenue to Indiana communities and schools, including the creation of a new income tax that local governments can choose to establish. The report also notes local officials could raise user fees to help cover the loss in revenue but that option isn’t as viable for schools.
Ultimately, the report concludes that the General Assembly needs to find a common ground between wanting to draw investment to the state and any impacts to local government.
“To reach a successful outcome, political credit for tax reductions and political blame for offsetting tax increases must be shared by both the General Assembly and by local elected officials,” according to the report.