Pence seeks review to simplify Indiana tax code

Gov. Mike Pence said Tuesday he wants to review Indiana's tax code to simplify it and promote economic development.

"This is not about raising taxes or cutting taxes," Pence said during a summit he called to examine possible tax changes. "This is about trying to look at a way we can reform the tax code and lessen the burden of compliance on Hoosiers and Hoosier businesses and create a more attractive environment for investment in Indiana through tax simplification."

Lawmakers have been cutting taxes fairly routinely in recent years, but a report from the conservative Tax Foundation found that that the average tax burden for Indiana residents grew between 2001 and 2011, in large part because of declining incomes. Lawmakers capped property taxes in 2008, but they also increased the state sales tax by a percentage point, from 6 percent to 7 percent.

Like much of his governing, Pence is starting off with a broad idea and leaving things largely open-ended. The summit, organized by Office of Management and Budget Director Chris Atkins, culled general ideas for tax reform from a mix of national conservative leaders and state and local tax experts.

Anti-tax activist Grover Norquist said no tax-code overhaul should be used to hide tax increases. Meanwhile, Jim Eads, former head of the national Federation of Tax Administrators, told attendees that comprehensive tax reform is often talked about but seldom achieved.

Arthur Laffer, an economist and an economic adviser to former President Ronald Reagan, discussed tax reform and the elimination of income taxes.

He conducted a study on 11 states that previously did not have income taxes but then enacted them.

“Every single one of those 11 states, no exception, has declined in their share of the overall U.S. economy,” he said.

Laffer said state and local officials can only manage to pass income tax rate increases when they promise the money will be used for schools and public services, such as police and fire, with 50 percent to 55 percent being spent on education. In nine of the 11 states in the study, public services actually declined, he said.

He also added that economic growth is the only way for the country – let alone the state – to get rid of income inequality.

Democratic lawmakers and staff attended the daylong event but were not included on any of the panels. House Minority Leader Scott Pelath, D-Michigan City, continued a longstanding criticism of Pence and the state's Republican leaders.

"Notably absent from these proceedings is anyone representing working people or working families trying to get into the middle class," Pelath said in a prepared statement. "Looking at the roster of participants, I'm not sure anyone should be surprised that the middle class has been left out. It's far better for them to lecture others than to get out into neighborhoods and communities to see the impact of their policies."

Despite the supermajorities that Republicans hold in both the House and Senate, Pence has had limited success pushing tax cuts through the General Assembly. His proposal to cut the state's income tax by 10 percent was cut in half and spread out over two years. Legislative Republicans paired it with their own preferred cuts, including the elimination of the state's inheritance tax. And Pence's call earlier this year to eliminate the state's tax on business equipment was dialed back sharply amid opposition from local leaders.

But the governor is laying the groundwork early for any effort to push legislation through the 2015 meeting of the Indiana General Assembly. Senate Appropriations Chairman Luke Kenley, a key budget leader Pence has tangled with in previous sessions, led a discussion at the summit that considered expanding the state's sales tax to services.

Kenley, R-Noblesville, and John Mikesell, a public finance professor at Indiana University, discussed the political ramifications of attempting to tax services, an ever-growing sector of the economy. Kenley cited the political fallout from Florida's attempt to expand its state sales tax.

"It's going to take some effort to prepare the thing that will be acceptable to the public at large, because generally the public is suspicious of tax-type activities. The minute they see something that didn't appear to be running smoothly, well, that's cause to stop the whole exercise," he said.