News and Tribune

November 27, 2012

Pence’s plan to cut income taxes may lead to intraparty squabble

GOP legislators hesitant to trim state revenue

Eric Bradner
Evansville Courier & Press

INDIANAPOLIS — An intraparty squabble over taxes and spending could be brewing as Indiana lawmakers prepare to return to the Statehouse in January for their four-month, budget-writing legislative session.

The primary cause of friction among Republicans who control the House and the Senate, as well as the governor’s office, is a campaign proposal by Gov.-elect Mike Pence

He wants to slash Indiana’s individual income tax rate from 3.4 percent to 3.06 percent — a 10 percent reduction to be phased in over two-years.

It’s an idea he believes would make sense, given that Indiana is on track to hand out $111 in individual tax credits to each Hoosier income taxpayer next year and still close the year with $1.4 billion in the bank, and a surplus expected to top $500 million set to be added to it.

But leading lawmakers — especially Indiana House Speaker Brian Bosma, R-Indianapolis — are persistently and publicly balking at an idea that would also drain about $500 million annually from a state that spends about $14 billion each year.

They make the case that while the surplus looks large — large enough to appear ripe for a tax cut — there’s some context that must be considered.

First, Indiana is already in the process of phasing its inheritance tax out entirely over a nine-year period, and is stepping its corporate income tax down from 8.5 percent to 6.5 percent. These changes will chip into tax revenues.

Second, a number of areas — most notably, K-12 education and public universities — have seen their funding reduced, or at least frozen, in recent years as Indiana lawmakers have tightened the state’s budgetary belt to weather the recession. They’re arguing for a slice of that surplus, and advocates of publicly-funded preschool are, too.

There’s also the reality that teachers flexed their political muscles by ousting Republican state Superintendent of Public Instruction Tony Bennett, an education reform advocate, and replacing him with Democrat Glenda Ritz.

“We should pay them more. We’re going to ask more and more of them as time goes forward. They’re going to have shorter vacations and longer school years,” Senate President Pro Tem David Long, R-Fort Wayne, said of teachers.

“We’re going to have to figure out a way,” Long said, “to continue to work on our reforms in a way that embraces our teachers.”

And third, uncertainty about programs that could carry significant price tags exists. Prisons are overcrowded. The Interstate 69 extension from Bloomington to Indianapolis must be financed. The federal health care law must be implemented.

There is also the reality that Bosma pointed out last week: Right now, more than half of the state’s tax revenue comes from sales tax collections. Income taxes and gambling revenue are becoming increasingly smaller pieces of the state’s financial pie.

That, Bosma said, is troubling.

“I have expressed caution to those who think it’s time to cut our income tax because it throws us more out of balance,” he said.

For now, the key players are falling back on the time-tested, pre-session tactic of avoiding positions that are too firm.

Pence’s now-forming administration has not committed to a specific timetable to push for the income tax cut he has proposed, and Bosma is ruling nothing out — only noting that he wants any proposals the House considers to be “sustainable” over the long run.

How this issue develops in the coming weeks and months will offer important lessons on how the state’s legislature and chief executive will interact in a post-Gov. Mitch Daniels and Speaker Pat Bauer era.

It will be a measure of Pence’s political capital and whether Bosma, Long or both are willing to flex their muscles by opposing their own party’s governor. It will also be an early look at the pressures the two leaders face within their own caucuses.

For now, Long said he and Pence have yet to sit down together. Bosma and Pence met, but Bosma said they did not talk about Pence’s proposal — “I think on purpose.”