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Should Indiana eliminate its individual income tax?
Indiana has been under conservative leadership for two decades, so it isn’t any wonder why our state is consistently among the most fiscally responsible in the nation. Hoosiers have come to expect responsible government as the norm, but as we stand at the crossroads of how to pave the way for the financial future of our state, we are asking: Should Indiana drop its individual income tax?
Of course, as a conservative, I would always like to cut taxes, but we must develop a thoughtful plan and identify ways to implement a system that would work for our budget.
Before I go any further, we must acknowledge that we still need to address a major obligation in the budget—the Pre-1996 Teachers’ Retirement Fund. Each year, we have a standard payment of about $1 billion we make to the fund. Once this pension plan no longer has an unfunded liability, Indiana will have freed up $2 billion in the state’s biennial budget. In 2011, the estimated payoff date was beyond 2060, but with recent targeted and aggressive additional contributions, we are now looking at 2031, perhaps sooner. With this date on the horizon, we should plan for the future and explore our options.
That’s why I have authored legislation that establishes the State and Local Tax Review Commission, which would take a two-year deep dive into our tax system and reevaluate our tax structure.
In Indiana, we view ourselves as a strong competitor in the marketplace when trying to attract and retain businesses. When you look at pretty much any list of the most affordable states, the states with the lowest taxes, or in the best financial shape, Indiana is always near the top of the list. We’ve identified the idea of lowering or eliminating the individual income tax as a way to become an even more well-rounded top competitor.
Just last year, the General Assembly agreed on a plan to cut Indiana’s income tax to 2.9% by 2029, which would tie us for the lowest rate in the country among states with an income tax. Currently, seven states are without an income tax, and I believe it will be important to study each of those states to see what works for them, what doesn’t, and what would work for us. Senate Republicans, as leaders on long-term fiscal policy, want to do something transformational versus making piecemeal changes.
This process might feel like a slow burn, but all good things take time. Indiana’s current tax system is like a blanket: If you keep pulling out threads, it might unravel and fall apart. The good shape Indiana finds itself in today didn’t happen by accident or overnight—it took planning and consensus-building. I am excited to see where Indiana goes if we commit to the same thoughtfulness in the years to come.•
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Holdman represents Senate District 19, which includes Adams, Blackford, Jay and Wells counties and a portion of Allen County. Send comments to ibjedit@ibj.com.
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