You’re already getting a state tax rebate next year. It might be followed by a tax cut.
Indiana overshot its budget projections last fiscal year by so much that the state’s automatic tax rebate law kicked in, for just the second time in its 10-year history. The Department of Revenue is still calculating how much you’ll get back. Four months into the new fiscal year, the state’s already a half-billion dollars ahead again. House Speaker Todd Huston (R-Fishers) says if the state takes in that much money, it’s too much of a temptation to spend it. He says he’d rather put that money back in Hoosiers’ pockets.
Huston says House Republicans will push for a tax cut in the upcoming session. He says they’re still discussing whether to propose a tax credit or a lower tax rate, but says the target will be the income tax. Huston says Indiana needs to look at its seven-percent sales tax, as more of the economy shifts from goods to services, but he says that’s too complex a project for a non-budget session.
Senate Majority Leader Mark Messmer (R-Jasper) says Senate Republicans advise “extreme caution.” He says the federal stimulus sparked more consumer spending, which juiced sales tax collections to record levels. He warns it’s not clear whether or how long that will continue as the effects of the stimulus wash out.
Messmer and Huston both say they’ll pay close attention when the legislature’s bipartisan budget analysts update their two-year forecast next month. Messmer notes the state already has a built-in fallback with the rebate law, which sends money back to taxpayers every two years if the state surplus climbs high enough.
Huston says he’ll also renew his push for a cut in the tax on business equipment. One version of that proposal would repeal a provision which says depreciation can’t fall below 30% of the original cost. Huston says that change would cost the state 300-million dollars, but argues it would remove an anchor around the state’s economic development efforts.
The current individual income tax rate of 3.23% has been in effect since 2017, and is the lowest in 34 years. Since 1963, the tax’s lowest and highest points are separated by just nine years — after dropping to 1.7% in 1979, a series of four increases doubled the rate to 3.4%, where it remained until 2015.