Indiana Gov. Mike Pence has a problem: He can’t convince his own Republican Party that his proposed 10 percent tax cut is a good idea for the state. The cut, which would reduce the Indiana income tax rate from 3.14 to 3.06 percent, was a campaign promise Pence made last year as he held off a hard-charge by Democrat John Gregg for the governor’s office.
Pence insists the state can afford the cut, pointing to a $2 billion budget surplus courtesy of former Gov. Mitch Daniels’ administration. Pence’s budget plan would reduce state revenues by $720 million the first two years and $500 million a year after that. It is anticipated that a Pence tax cut would save a majority of Hoosiers about $100 a year.
Meanwhile, public schools and local governments have struggled considerably in recent years to maintain services with shrinking revenues as a result of property tax caps. Indiana’s GOP seems to recognize those struggles and has thus far rejected Pence’s tax cut, passing its own $30 billion, two-year budget plan in the House. That plan omitted an income-tax cut and instead earmarked $520 million in increased spending on education and transportation infrastructure. The budget is now in the hands of the Indiana Senate. Republicans hold a super majority in both chambers.
The Association of Indiana Counties — also dominated by elected Republican officials — also favors the GOP budget plan over the Pence plan. Considering that state allocations to local governments for road repairs dropped by about $100 million between 2000 and 2010, we can understand why there is concern, especially when the cost of those repairs effectively doubled in that time.
It’s encouraging that the Republican dominated House and Senate is not content to be a rubber stamp for the new governor. Obviously Pence wants to keep his campaign promise to cut taxes, but perhaps now is simply not the time.
We need what’s best for Indiana right now, not what might be best for Mike Pence’s political career in the future. Tax cuts sound great, but only if they serve the greater good and don’t cripple the services Hoosier communities count on to better themselves. Pence vowed last week to “relentlessly” fight for his budget plan, with the hope some form of the tax cut will still come from the Senate. If it does, we think it would be a mistake.
First the Legislature should examine how such a surplus came to be before voting to slash its revenue in the future. We have concerns that some of that surplus was built on Local Option Income Taxes that never made it back to the counties and municipalities where they belonged. That needs to be resolved.
Perhaps down the road Pence’s tax cut plan will make more sense. We’re just not there yet, and our Republican leaders seem to know it.