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April 5, 2013

Ind. Senate offers tax cut

Pence says GOP plan for 3 percent reduction not enough.

Indianapolis — Indiana Gov. Mike Pence appears to be still dug in on his demand for a 10 percent income tax cut, despite a “nod” from Senate Republicans willing to give him a smaller slice of what he wants.

On Thursday, Republicans who control the Senate unveiled a $29.5 billion two-year budget plan that mirrors much of what House Republicans have already proposed. It adds more funding for roads and schools than what Pence proposed in his budget plan, but unlike the House bill, the Senate spending plan includes a 3 percent cut in the personal income tax rate.

Pence wants a permanent 10 percent cut, which would take about $750 million in revenues out of state coffers over the next two years and $500 million every year after that.

“That’s still my position,” the Republican governor told reporters at a press briefing after the Senate budget bill was released.

Repeating his frequently-made argument that a 10 percent income cut would boost the state’s economy, Pence declined to answer a reporter’s question about whether he’d veto the final budget bill if it came to him without the tax cut he wants.

Pence said he’s still in negotiations with the legislators in his own party who’ve so far rejected his tax cut plan.

“I’m encouraged but not satisfied,” Pence said. “I look forward to a vigorous and respectful discussion in the weeks ahead.”

Time isn’t on his side: The final two-year budget plan has to be approved by both the Senate and House before the end of April – or the governor will have to call the legislature back into a special session.

Republicans who control the House rejected Pence’s tax cut plan outright in their budget bill. GOP leaders in the House called it unsustainable and derided it as little more than a campaign promise made by Pence when he was running for governor last year.

Senate Republicans were a little more conciliatory. While they boosted funding for roads and schools beyond what Pence proposed in his budget plan, they also included a drop in the income tax rate from the current 3.4 percent to 3.3 percent.

Pence wants to lower Indiana’s 3.4 percent individual income tax rate to 3.06 percent.

“It is a nod to Gov. Pence, but also something we agreed with him on – that this does make sense,” Senate President David Long said of Pence’s call for reducing taxes.

The Senate budget bill speeds up elimination of the inheritance tax, killing it retroactively to Jan. 1, 2013. The tax, which brings in about $150 million a year, is currently being phased out and set to end in 2022.

The Senate budget bill also lowers a financial institutions tax and would reduce revenues to state and local governments by about $36 million each year. It also continues to step down the corporate income tax rate to 6.5 percent from 8.5 percent.

Altogether, the Senate plan reduces tax revenues by about $500 million a year – about the same amount as Pence’s tax cut plan.  

Like the House-approved spending plan, the Senate budget bill includes $331 million in additional funds for elementary and high school education over the next two years. The Pence budget plan proposed only a $137 million increase for education, with half of that money to go to high-performing schools.

The Senate spending plan also increases road funding. It puts $200 million a year in a new “Major Moves 2020” transportation fund to pay for additional lanes on Interstate 70 and Interstate 65 crossing the state. It adds $112 million for state road and bridge construction, plus another $101 million in new funds for local roads.

But the local road repair money is conditional under the Senate plan: Only counties that have, or agree to impose, an excise surtax and a wheel tax will be eligible to get the additional money.

Howard and Tipton counties have implemented a wheel tax but Miami County does not have one.

Long said the legislature wants to invest in infrastructure, but thinks local governments need to step up, too. “We think they ought to have some skin in the game if they want this free money from the state,” Sen. Luke Kenley, R-Noblesville, said.

The budget bill passed out of the Senate Appropriations Committee Thursday on a 9-4 party line vote. Democrats derided the proposed income tax cut, saying the money should be spent on schools and health care.  

Democrat Sen. Lindel Hume of Princeton said the average Hoosier, making $50,000 a year, would see only $50 from the tax cut: “Less than $1 a week.”

“It’s just wrong for us to do that,” Hume said. “Most of the people in this state could care less about that dollar a week, and we seriously need that money to fund this state,” Hume said.

Maureen Hayden covers the Statehouse for the CNHI newspapers in Indiana. She can be reached at maureen.hayden@indianamediagroup.com.

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