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To axe the state income tax while continuing to keep other taxes low is to bankrupt The State and erase the work/legacy of Mitch Daniels.
There is something to be said about The State prioritizing low business taxes over low taxes for individuals and families. That has been a problem. Indiana families have an above-average tax burden in a state with a relatively low average incomes and a relatively high cost of living. It’s a problem.
Cutting spending to nix the state income tax is a silly proposal. The State barely spends enough money as it is. We should be investing a ton of money into policy and infrastructure to support good land use and a high quality of living – which would pay off with higher property values and higher incomes – but we just keep blowing money on maintaining existing infrastructure & building new infrastructure that is “cheap” in terms of initial investment required, but very expensive when it comes to the amount of investment that it attracts and its ability to be maintained in perpetuity with tax revenue. Building I69 south of Indy, for example, is destined to be a liability in perpetuity.
Explain how I-69 is a liability but 65 or 70 aren’t.
I’ve always said you get what you pay for. Kansas had some of the lowest taxes of any Republican State in the US and it shows. Crumbling roads, poor services, and crumbling infrastructure, and bad schools. Guess what? People still move to the coasts where taxes are high, but the parks are nice, streets are drivable, and schools do a good job. They don’t move someplace because the taxes are low.
In addition, Indiana has some of the most regressive tax policies in the US. Income tax absolutely makes sense, but a flat tax with few or no exemptions hurts most lower income Hoosiers. Like the Federal tax, it needs to be graduated so that those that can afford to pay, do.
I’m still pissed that Indiana mailed somebody at my income level, a “surplus” tax check rather than finding a meaningful and useful way to spend the money. Just increase the road funding allocation, and cites and counties across the state would be working at getting sub-par bridges repaired, or repaving roads.
I am also leery that this just another way to take a whack at all of Indiana’s big “Democratic h4ll-hole” cities, by cutting off any of the revenue that used to get shared from the state income tax.
Without state income taxes, two appealing tax credits for wealthier Indiana residents will become less impactful and will have long-term consequences. The investment in research and development, made popular with the R&D tax credit (a tool for many small businesses, both C corp and S corp), will be significantly impacted with the elimination of state income taxes. In addition, Scholarship Granting Organizations, a key element in the school voucher program, will be rendered worthless. Many private schools are reliant on SGO dollars to help bridge the gap between voucher dollars and tuition costs. Without SGO dollars, these privates schools will struggle to provide a seat for many of the lower income students helping to fill seats today. How about the 529 college savings plan? While it will still have value in the tax-exempt investment growth, the tax benefit for annual contributions will also be eliminated without state income tax.
The percentage of state & local tax collections by source in Indiana (https://taxfoundation.org/data/all/state/2023-state-tax-data/): Property 24.3%, General Sales 25.8%, Individual Income 30%, Corporate Income 2.4%, Other 17.5%. Pretty nicely spread out (except for Corporate Income). The states mentioned (FL, TN, TX) all replace individual income tax with something else. For property tax, TX ranks 38th, TN 33rd, FL 12th, IN 2nd. For Sales Tax TN ranks 46th TX 37th, FL 21st, IN 19th. For individual income tax: IN ranks 15, TX 7th, TN 6th, FL 1st. For corporate income: TX ranks 47, TN 45th, IN 11th, FL 10th. Nothing is free and state spending rarely if ever goes down. Crouch does not propose decreasing spending, just limiting its increase. So, eliminating 30% of the state’s revenue will still mean the loss will have to be filled in from somewhere: increased property taxes (disadvantage property owners), general sales tax (disadvantage lower income earners that spend a higher percentage of income on necessities), or corporate income tax (never happen). The individual income tax is the only “progressive” tax we have. The more you earn, the more you pay, and it applies to everyone. It is somewhat regressive since it is a flat tax, but less so than sales tax. Indiana’s Overall Business Tax Climate Index is 9th in the nation, better than TX (13th) and TN (14th). FL is 4th, but there are many other reasons that people move to FL other than taxes, reasons that IN does not have.
Indiana’s state sales tax is too high now. And is actually higher than the stated rate because the state collects the sales tax before any discounts, rebates or coupons are applied to the purchase.
Unless the state significantly slashes spending, there is no way to eliminate the state income tax without significantly raising other taxes and fees. Other commenters here have accurately noted that the state is already miserly in spending on education, environmental protection, infrastructure, and other quality of life concerns. The result has been and continues Indiana sits near the bottom of state rankings (along with such stellar performers as Mississippi, Alabama, and Louisiana).