"Indiana House of Representatives Chambers, Indiana Statehouse, Indianapolis, Indiana" by Charles Edward is licensed under CC BY-SA 3.0

Good news for Indiana taxpayers, as leaders are making tax cuts a priority in 2022 – after a few years of that not being the case.

The House passed House Bill 1002, a $1 billion-plus tax cut, by a 68 to 25 vote last week. Governor Holcomb also pitched a tax cut in his agenda: eliminating the floor on the property tax businesses pay on equipment. This priority is very similar to a proposal in the House Bill.

HB 1002 would slash taxes by more than $1 billion in total, by cutting the income tax from 3.23% to 3%, repealing the utility receipts tax and utility services use tax, and allowing personal property to depreciate to zero (this provision is similar to Governor Holcomb’s proposal, but affects all equipment, Holcomb’s would address future purchased equipment).

Going to a 3% income tax rate is estimated to save hard-working Hoosier taxpayers $586 million in the first full year the 3% rate takes effect.

The bill is now in the Senate, which will have its chance to weigh in. If the Senate does alter the bill, they should increase the income tax reduction, rather than doing anything that would reduce the savings to Hoosiers.

Legislators should especially avoid classic tax reform traps, like expanding the sales tax, including applying it to services. This approach would risk raising the overall tax burden, and certainly cut into the tax savings of other good provisions, and would do so in a regressive way.

ATR sent a letter of support for HB 1002 to the House, applauding Speaker Huston’s swift action on tax cuts, and also has urged legislators to continue to pursue more tax relief.

Last year, 14 states enacted income tax relief. This includes neighboring Ohio, which has reduced income taxes in its last two budgets. The list of states with no income tax whatsoever is growing, as Mississippi is moving to eliminate its income tax this session.

Tax reform is proving its value as Americans move from high tax states to low tax states in droves, and states with no income taxes like Florida and Texas find ways to further reduce burdens on taxpayers. To help pursue more ambitious tax reform, while ensuring a revenue surprise does not cause a budget problem, revenue triggers are a proven policy.

Indiana lawmakers have had a good start to 2022, but there is a ways to go before these needed tax relief proposals deliver results for taxpayers.