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March 13, 2013

NEAL: For growth’s sake, cut state income tax

Popular perception to the contrary, Indiana is not a low-tax state. When you add up all the different taxes — property, sales and income assessed by federal, state or local government — we rank right in the middle.

Twenty-three states have lower overall tax loads than Indiana’s. A few more may join them if they follow through with plans to reform their tax systems.

This is the best argument for Gov. Mike Pence’s tax-cut proposal, an idea that has yet to make it into the budget bill and has received lukewarm support from lawmakers. Pence has proposed reducing the state’s income tax from 3.4 percent to 3.06 percent, saving Hoosiers about $380 million a year.

Republicans, who hold supermajorities in both houses, should be jumping at the chance. When a state can afford a tax cut, and Indiana can, it’s smart to pass one.

That’s exactly what other states are trying to do as they continue to struggle their way out of this recession. Since January, Govs. Bobby Jindal of Louisiana, Dave Heineman of Nebraska and Sam Brownback of Kansas have called for their states to end the state income tax altogether and replace it with sales taxes. All three share the view that low taxes are key to job creation. The North Carolina legislature is considering repeal of personal and corporate income taxes.

If these states are successful, “they could provide the momentum for a nationwide trend,” said one analyst.

The debate in North Carolina, where the unemployment rate is 9.4 percent, has been especially instructive. A study by the John W. Pope Civitas Institute estimates that state would have at least 217,000 more jobs without the income tax.

The study compared growth rates of states based on corporate and individual income taxes and found “a large and negative impact on economic growth” in the high tax states. The study also found that states without a personal income tax have experienced higher average annual growth since 1992.

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