Revenue forecast could swing Pence’s tax-cut hopes

The state revenue forecast due out April 16 will be lawmakers' last bit of guidance before finalizing Indiana's next two-year budget, which so far does not include the 10-percent income-tax cut that is Gov. Mike Pence's top priority.

An improvement over the December forecast could give Pence leverage heading into the final two weeks of the legislative session ending April 29, but economists predict there will be little change.

“When you balance everything out, it probably won't be much different than December,” said Bill Witte, associate professor emeritus of economics at Indiana University.

The Dec. 17 forecast predicted revenue would grow a modest 2.55 percent over the next two fiscal years, which begin July 1. The projection put fiscal year 2014 revenue at $14.66 billion and 2015 revenue at $15.09 billion.

The State Budget Agency issues a two-year revenue forecast every December and a revised forecast every other April, coinciding with budget-writing years.

Pence would like to lower the state tax rate from 3.40 percent to 3.06 percent over two years, an estimated savings to taxpayers of $795 million in that time. House and Senate leaders are concerned about the possible revenue reduction and have different priorities.

The House budget proposal included no income-tax break and increased spending on education and roads. The Senate would spend similar amounts in those areas, but also cut the income tax from 3.40 percent to 3.30 percent while eliminating the state inheritance tax and financial institutions tax.

Without a much-improved forecast, a compromise could be difficult.

The federal fiscal cliff, which was looming in December, didn't play out with the drama that some feared, but it is having a negative effect on the national economy, Witte said. Consumers have begun to feel the hit of a payroll-tax increase, and many federal workers are set to be furloughed this spring.

At the same time, the housing market is recovering, Witte said, and the automotive sector, which has a heavy presence in Indiana, continues to grow.

Another positive development is that Indiana's employers have added to their payrolls faster than the nation's as a whole, said Ball State University economist Mike Hicks. “But we're not doing well enough to suggest we're going to have a starkly different forecast," he added.

Hicks thinks the April forecast will be better, but not "significantly better."

Pence doesn't need a glowing forecast to argue that his tax cut would stimulate Indiana's economy, said Ed Feigenbaum, publisher of Indiana Legislative Insight.

“This would put more money in the pockets of Hoosier consumers, Hoosier taxpayers at a time when we need to be doing that,” he said. “That's what he's been saying all along. This just reinforces that.”

Not more than a “handful” of lawmakers favor the Pence tax cut, Feigenbaum said, and those few seem more convinced of the political gain than Pence's economic stimulus argument.

Indiana Chamber of Commerce President Kevin Brinegar said a postive forecast would help Pence make his case, but he doesn't think it will be so. "I'd probably bet it's going to be about the same," he said. "There hasn't been any dramatic change in the economy."

The chamber backs the Pence tax cut because it would help more than 80 percent of Hoosier businesses that pay taxes, based on their owners' personal income.