Legislators have approved a $1.2 billion tax cut – provided the state’s economy stays strong.
The bill abolishes a tax on your utility bill, effective July 1. That’ll save the typical Hoosier household 69 dollars a year. That cut is followed by a two-percent income tax cut next year, from 3.23% to 3.15%. After that, the income tax rate will continue to drop every two years until it bottoms out at 2.9%, a 10% cut from where it is now.
Only the first cut is guaranteed. The second cut, in 2025, will happen only if Indiana revenue grows by two-percent the previous year. The two remaining stairsteps will require the state to repeat that accomplishment and pay off the remaining pension liability for teachers who retired before 1996.
House Speaker Todd Huston acknowledges wiping out the pension debt will be a heavy lift, but says it’s doable. He says House Republicans will resume the push for tax cuts in next year’s session, when legislators write a new state budget. Senate Republicans had balked at implementing cuts before the triggers written into the income tax cut are designed to address those worries.
The current tax rate is already the lowest since 1987. If all four phases are implemented, the new rate would be the lowest since 1982. That would match North Dakota as the lowest top tax rate of any state with an income tax, though some states which use tax brackets have lower rates for lower incomes.
So far, the state has been outstripping revenue projections, and is on track for a five-billion-dollar surplus by the end of the current budget next year.
The Senate voted unanimously to send the bill to Governor Holcomb, who has endorsed the income tax cut. The House approved it 82-17. Democrats, including some who voted yes, complain the state could have done more with its cash windfall. Even in terms of cutting taxes, they argue freezing the gas tax and the sales tax on gas would have a bigger impact as pump prices soar.
