Pence claims tax cut needed to beat other states for jobs

"This is about competition," Pence said last week. "This is about seizing the advantage we have with a strong balance sheet to make Indiana even more attractive for investment and to create jobs."

The governor said he's been watching fellow Republican governors in Kansas, Louisiana, Nebraska and Ohio propose or enact tax cuts bigger than the reduction he recommended in his 2014-15 budget plan.

Pence said he isn't planning to modify his call for lawmakers to set a 3.06 percent personal income tax rate, down from 3.4 percent, but he's well aware businesses are watching what states are doing. 

"We're not operating in a vacuum, we're in a competition for jobs," Pence said. "We need to seize this opportunity and continue to be bold."

Pence said he is certain reducing income tax rates produces jobs. While he's not ready to eliminate Indiana's income tax altogether, he noted two-thirds of U.S. jobs created in the past decade were in the nine states that don't have an income tax. 

"I think making Indiana the lowest-taxed state in the Midwest and leaning into this ever-increasing competitive environment is exactly where we need to be and where the jobs are going to be," Pence said. "We have the best people and the best location and everything that we can do to strengthen and enhance Indiana's position, we should."

The governor discounts his critics, including Republican leaders in the General Assembly, who say Indiana ought to keep taxes at their current level and use the state's budget surplus and excess reserves to restore funding for education and other services that were cut when state revenue cratered during the Great Recession.

"People who talk about having to choose between increasing funding for schools and roads or doing tax relief, I think that's a false choice," Pence said. "I think Indiana is one of the few states in the country that can afford to do both."

The budget-writing House Ways and Committee will render its verdict on that issue in the next week when the committee sends its budget proposal to the full House.

House Speaker Brian Bosma, R-Indianapolis, hinted Thursday the House budget will restore earlier budget cuts instead of reducing taxes. He noted that in 1998 Indiana had a $2 billion surplus, cut taxes and then found itself with $1.4 billion deficit six years later.

"We share the governor's goals ... it's the method of reaching those goals that we're talking about now," Bosma said. "Sustainability is important."

Bosma said he also questions whether a small income tax cut will have the job-creating effect Pence believes it will.

"If we're trying to put more money on the street for more job creation, my calculation is that an entrepreneur that makes a half-million dollars a year is going to get $1,072 in their pocket, and I'm looking to see if that's going to be a job-creator or not," Bosma said.