Gov. Mike Pence not backing down on Indiana income tax cut

Pence pushing 10 percent cut

INDIANAPOLIS - Gov. Mike Pence is still pressing lawmakers to reduce Indiana's income tax rate by 10 percent – but he is leaving plenty of room for them to find creative ways to give him what he wants.

Pence said such a cut is the way Indiana will "win the war for jobs," making an economic argument that injecting a combined total of more than $500 million per year into taxpayers' wallets will stimulate growth even if that isn't a huge sum on an individual basis.

"By permanently lowering the rate, businesses have the ability to leverage projected earnings five and 10 and 15 and 20 years down the road to go buy more equipment and hire more people," he said.

The first-term Republican governor, buoyed by an optimistic new state revenue forecast, originally sought to lower the income tax rate from 3.4 percent to 3.06 percent, phased in over the course of Indiana's next two-year budget.

That would have lowered state tax collections by a total of $780 million over that two-year period – a price that's likely too high for the Republican-dominated legislature. So those lawmakers could opt to phase the cut in over a longer period of time.

Pence did not rule out vetoing a budget that does not include his tax cut when speaking with reporters, but also sounded a practical note, mentioning a meeting Tuesday and breakfast Wednesday with legislative leaders.

"I'm really just a salesman at heart," he said Wednesday during a speech he billed as the closing argument for his tax cut – delivered at an Indianapolis Chamber of Commerce luncheon at the Omni Severin Hotel.

His speech came just two hours before fiscal leaders in the Indiana House and Senate met for their first – and what could be their only – public joint conference committee. There, Republican leaders said they are close.

The two key budget negotiators, House Ways and Means Chairman Tim Brown, R-Crawford, and Senate Appropriations Chairman Luke Kenley, R-Noblesville, each said they have agreed that the budget should contain a total of $500 million in tax cuts.

That, though, includes $200 million in corporate income tax reductions. The previous General Assembly already approved those cuts, so lawmakers would actually have to step in and stop them. It's possible, but unlikely.

Another $19 million could come through a cut in Indiana's financial institutions tax, leaving nearly $300 million to divide between Pence's priority of an income tax cut and Republican legislators' preferred elimination of the state inheritance tax.

That tax, which is already being phased out between now and 2022, could be wiped out immediately at a cost of about $150 million over the two-year budget cycle. Or the phase-out could simply be sped up, leaving more money in the current budget cycle for Pence's income tax cut.

"There's going to be tax cuts in a half a billion dollars," said Brown, who added that the two-year, $30 billion budget, once it's final, will "touch everyone in the state of Indiana with tax cuts."

Kenley said Indiana's next budget gives lawmakers a chance to boost funding for key priorities, including K-12 and higher education and transportation, without making the agonizing cuts they enacted in recent years.

"This particular budget is really a budget of opportunity. We've spent four to five years here in Indiana being very frugal," he said.

Budget proposals advanced by the House and Senate similarly treated K-12 education, with each providing for a 2 percent total funding bump in their spending plans' first years and another 1 percent in the second year – although the Senate tied some of that year-two money to performance.

The key difference between those two proposals is transportation. The House's budget boosted transportation funding by $250 million per year total, divided between the state and local governments. The Senate increased immediate funding by a smaller amount, but also set aside an extra $200 million per year to be tapped in future years for major highway projects.

"We've been through some lean times, and we now have an opportunity to make parts of Indiana whole," said Rep. Suzanne Crouch, R-Evansville.

Democrats have no power in the final budget negotiations, since Republicans hold super-majorities in both the House and the Senate.

However, Democrats continued to press for more money for health care programs and schools on Wednesday, and also argued that Indiana ought to pursue a Medicaid expansion as envisioned in President Barack Obama's health care law.

"A budget opportunity for whom?" asked Rep. Greg Porter, D-Indianapolis.

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