Howey: Tax repeals and the promise of Gov. Pence

In the past month, I feared that Gov. Mike Pence and legislative Republican leaders had a rude surprise for us middle-class working stiffs.

Posted on Jan. 30, 2014 at 2:28 p.m.

INDIANAPOLIS — Seven out of 10 Hoosiers live in a city, suburb or town.

In the past month, I feared that Gov. Mike Pence and legislative Republican leaders had a rude surprise for us middle-class working stiffs. They want to repeal the business personal property tax in an effort to improve what is already one of the best business climates in the nation. They are attempting to begin a phase-out on new business equipment this year, with the goal of a total repeal a few years down the road.

This is good, right? Aren’t all tax cuts good?

Perhaps, unless the tax cut for businesses and big corporations is made up in the form of local option income taxes. A local option income tax means that they want individual counties to make up the $500 million to $1 billion or so in revenues lost to local governments, libraries and schools by dinging your paycheck.

Earlier this month, Pence said in his annual State of the State address, “To make Indiana more competitive let’s find a responsible way to phase out this tax. But, let’s do it in a way that protects our local governments and doesn’t shift the burden of a business tax onto the backs of hardworking Hoosiers.”

So that is the dilemma facing the governor and legislative Republicans. The constitutional property tax caps passed by voters in 2008 have already sliced away significant portions of municipal budgets. Cities like Terre Haute and Muncie have had to slash budgets by millions of dollars. What mayors and city councils are now facing is cleaving into bone.

Terre Haute Mayor Duke Bennett, a Republican, told the Tribune-Star it could lose $4 million of a $33 million general fund budget. ”We can’t sustain another $4 million hit on the general fund.” Bennett said that without replacement revenue, the city would be forced to cut 150 employees. “A big portion of that would be policemen and firemen,” he said. “We’ve cut all of the other areas to the bone, basically.”

What the tax caps and now a potential business personal property tax repeal could end up creating communities that can't afford to bus their kids to school, keep the street lights on, plow the snow, and fix the streets.

Two bills in the General Assembly — House Bill 1001 and Senate Bill 1 — begin the repeal process, but neither one of them has replacement revenue for municipalities and counties, other than a slow phase-out and the income tax. SB1 would form a summer study committee while eliminating the tax for businesses with less than $25,000 in property.

There are about six weeks left in this session, and the replacement part of this equation is sketchy at best, and revealing when you consider how ill-prepared the governor and legislative leaders have been to find a replacement solution.

As they say on ESPN, "C'mon, man!"

Last week, Republican mayors Greg Ballard of Indianapolis, Jim Brainard of Carmel, Lloyd Winnecke of Evansville and Democrat mayors Greg Goodnight of Kokomo, Tom Henry of Fort Wayne and Peter Buttigieg of South Bend met with Pence to express their alarm at what cities would face with a repeal and no replacement.

Pence sent a letter to mayors later in the day, saying, “I want to assure you that I understand your concerns. You provide essential services to your citizens, and I can see why some believe the phase-out of the business personal property tax could threaten service delivery. I have said that we cannot phase out this tax in a way that shifts the tax burden to hard-working Hoosiers. You may be assured that I will stand by these commitments to your community and your citizens.”

Winnecke emerged from the meeting, telling the Evansville Courier & Press, “He reiterated to us that he would not sign any legislation that was not revenue neutral to communities. He reiterated that point several times during the meeting.”

Here’s a couple of closing thoughts. First, over the past 10 years, Indiana has dramatically altered its tax structure. Who are the winners and losers? I'm not sure anyone can tell you. We need a timeout, and a comprehensive study of what's been accomplished and whether the winners have won too much and the losers are just poor schmoes.

Secondly, Pence is on record saying he understands the dilemma, and that replacement revenue will be found.

We need to hold him to that promise.

Howey, a former Elkhart Truth reporter, publishes at www.howeypolitics.com.

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