Extreme caution should be taken in conversations about the state income tax

As a member of the State and Local Tax (SALT) Revenue Task Force, I’ve come to one clear conclusion after two of the four scheduled meetings: we must proceed with extreme caution when it comes to the proposal to eliminate the state income tax.

The elimination of the income tax has the potential to take away huge swaths of tuition support funding from all K-12 schools every year. This is the main funding source for schools and equals roughly $8 billion dollars, or nearly 40% of the State General Fund Revenue. This is just one of the programs Indiana would no longer be able to afford if we eliminated the income tax.

Beyond this incomprehensible funding cut for schools, I’m also convinced that we shouldn’t eliminate the state income tax due to testimony from former esteemed Republican Sens. Luke Kenley and Brandt Hershman. Both men were architects of numerous reductions to Indiana’s tax base. Both former Senators conveyed to us on the SALT Revenue Task Force that it would not be in Indiana’s best interest to eliminate the income tax, and that Indiana does not have the natural resources or tourist economy to replace the lost revenue, which other states – namely Texas and Florida – do.

Kenley also stated that if the income tax is eliminated, a major economic downturn would force us to reinstate the tax with new tiers that are tied to how much an individual earns. In Sen. Kenley's opinion, this would be far worse than keeping the current non-tiered “flat rate” income tax.  While I would like to eventually see a tiered system for income tax, I don't want that to happen as a last resort when Hoosiers are left struggling during a recession.

For years, Indiana Republicans have vehemently opposed any progressivity within the state’s tax system. Even when Republican Gov. Mitch Daniels proposed a variation of the income tax, proposing a second-tier surcharge for those making over $100,000, his fellow Republicans in the General Assembly refused to budge. Nothing resembling even minimal progress in our income tax system has been proposed again.

The bottom line is this proposal to eliminate the income tax altogether is not a way to help all Hoosiers – it’s a way to keep high-earning Hoosiers from having to pay their fair share in taxes.

Furthermore, many problems in our current tax system have been created by state Republicans. A recent Fitch Ratings report found that – while Indiana’s recent cuts to the income tax were more or less sustainable – making school vouchers a new entitlement program added permanent new costs to the State Budget that make adding any changes to the income tax policies riskier. As you recall, expanding the school voucher program was deemed a high achievement by Indiana Republicans in their 2023 biennial budget.

Our tax system in the state of Indiana is not perfect. It is irresponsible, however, to rush into something as drastic as eliminating the state property tax without taking cautionary measures to ensure we aren’t risking our long-established and vaunted Triple AAA Credit Rating. I, along with other members of the SALT Revenue Task Force must proceed in these conversations with extreme caution to ensure Hoosiers – and our collective future – is not put in jeopardy by a failure to consider the long-term impacts of eliminating the state income tax.