A tax cut benefits the payer of that tax.
People relying on the services provided by the tax feel the negative impact of the cut.
In Indiana, the first result routinely trumps the latter whenever a tax cut gets proposed. That priority has given the state its low-tax, business-friendly reputation and fits appropriately in America’s economic system. But who gets top consideration when a proposed tax cut simply shifts the burden for public services from one group of taxpayers to another?
If you guessed “corporations,” don’t punish yourself for thinking cynically. Hoosiers soon may see an example of that perception become a reality.
Gov. Mike Pence and Republican legislative leaders want to eliminate the business personal property tax. It’s a tax on business equipment, everything from office desks and chairs to large manufacturing machinery. The governor and fellow conservatives say the equipment tax scares away businesses that might otherwise locate in Indiana. In Pence’s view, border states have an edge; Michigan may end its business personal property tax, Kentucky’s is lower, and Ohio and Illinois don’t have such a tax.
It’s been awhile since beleaguered Illinois’ tax policies were characterized as an economic threat to Indiana, a state billed as a fiscal oasis.
After rolling out the business equipment tax-cut plan, Pence and House Speaker Brian Bosma (R-Indianapolis) heard an outcry from Hoosier mayors — many from their own Republican Party — as well as school superintendents and library administrators. Why? This reduction, the latest in a long series of tax cuts, would in turn reduce revenue to cities, counties, school districts and libraries by a cumulative $1 billion. All of those entities have already been living leaner from property-tax caps enacted in 2008 and the elimination of the business inventory tax a decade ago.
Vigo County now collects 26 percent of its property tax from business equipment. Elimination of the tax would reduce revenue to the county by $3.2 million, the city by $4.5 million, the Terre Haute Sanitary District by $935,838, Vigo County schools by $3.2 million and the Vigo County Public Library by $636,475. People who lead and use those services must wonder how closely state officials considered the local ramifications.
If the powers that be didn’t recognize the consequences before the backlash, they do now.
Pence and Bosma have not backed away from the tax cut, but acknowledged that a replacement source must be found for funding local services, just as Indiana’s neighbor states have done. Pence and Bosma don’t have a definite source planned. The governor told the Times of Northwest Indiana he won’t “prejudge that debate” and is leaving the solution to state legislators, who convene next month. Maybe the tax could be phased out gradually, he speculated, or maybe counties could be given the option of eliminating it individually. Still, how will the state replace the funding for towns, and libraries and other recipients?
The Times reported Pence deflected follow-up questions about whether he would accept a plan to hike local income taxes to offset funding lost from the equipment-tax cut for corporations and businesses. The burden is “going to be pushed onto local homeowners,” Terry Goodin, a Democrat state representative and superintendent of schools in Crothersville, predicted in a Kokomo Tribune interview. “It’s a shift from the corporations to local communities, and that’s going to have a huge impact.”
Indiana has already cleared a wide path for business growth. The business personal property tax should be moved farther down the highway, until a more reasonable alternative is found.
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