Leaders of local schools and governments packed Auburn City Hall for a meeting with three state legislators Saturday.
They came ready to argue against repealing Indiana’s tax on business equipment. It would pose a serious threat to their budgets — hundreds of thousands of dollars in some cases.
But state Sen. Dennis Kruse, R-Auburn, took the steam out of the crowd right away. He explained that complete elimination of the business equipment tax now looks unlikely.
Instead, the Indiana Senate and House have devised separate plans that would soften the blow on local governments and schools, or even cut it to zero.
Gov. Mike Pence has been pushing to scrap the equipment tax to help Indiana recruit businesses. The Senate, especially, is trying to sell Pence on a different approach.
Local leaders may have left Saturday’s meeting with a sense of relief. But a closer look at the House and Senate plans shows Hoosiers shouldn’t stop worrying yet.
The Senate plan sounds more promising and more likely to end up passing.
Instead of ending the equipment tax on all businesses, the Senate would eliminate it only for small businesses with less than $25,000 worth of equipment. That would affect about two-thirds of Indiana businesses, but they own less than 1 percent of the taxable property.
Small businesses would get a tax cut estimated between $30 million and $54 million, compared to the $1 billion impact of Pence’s plan. But the state would eat the tax cut instead of passing it to local schools and governments.
Kruse thinks the cost of collecting the tax on small businesses might be nearly equal to the income— so it makes perfect sense to stop.
As a different carrot for big businesses, senators want to cut Indiana’s corporate income tax rate from 6.5 percent to 4.9 percent over the next six years. Kruse says that would give Indiana the second-lowest rate in the nation.
Big businesses would prefer a tax cut on income instead of equipment, Kruse adds.
The corporate income tax cut eventually would reduce the state’s revenue by a net $107 million per year. What would have to be cut from the state budget? There’s no clear answer yet.
The new plan from the House of Representatives contains two glaring flaws.
The House now wants to cut taxes only on new business equipment — not existing equipment.
The impact of the House plan would be small at first — but equipment gets replaced, and new businesses start. After several years, most business equipment would be new and tax-free. Schools and local governments still could find themselves hurting, eventually.
The House plan also calls for letting each county decide if it wants to end the business equipment tax.
“You set up an automatic neighbor-against-neighbor fight,” with that plan, Auburn Mayor Norm Yoder warned Saturday.
The best idea Saturday came from state Sen. Sue Glick, R-LaGrange, who wants to stop changing tax policy in “haphazard fashion.” She called for a thorough study of Indiana’s overall tax policy.
State leaders are “bringing up ideas without a lot of thought and foresight,” Glick complained. That certainly seems to apply to Pence’s plan this year.
Because Pence asked, the Legislature seems determined to pass some kind of tax cut for businesses this year — but it might be smarter to wait a year instead of making the wrong move.