News From Terre Haute, Indiana

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June 29, 2014

STATE OF THE STATEHOUSE: Tangled road to simplified tax code

Governor’s first step toward reform leaves local-level GOP stranded

INDIANAPOLIS — Pushing his idea that a simpler tax system can boost Indiana’s economy, Gov. Mike Pence invited prominent conservative economists to a closed-to-the-public conference last week.

Keynote speakers at the daylong Tax Competitiveness and Simplification Conference included former Reagan adviser and tax-cut champion Arthur Laffer, who delivered entertaining presentations to a mixed audience of business leaders, public policy wonks and politicians.

The economists’ message, later video-streamed on a state website, was in essence that simply doing away with onerous taxes will go a long way toward promoting development and prosperity.

Their words won applause. But some less well-attended presentations throughout the conference belied the day’s theme. As it turns out, there’s nothing simple about tax simplification.

That may have been best illustrated during a session on local tax revenue.

A panel of speakers, which included local economic development experts and Indiana economists, spent much of their time talking about the proposal floated by Pence last year, and still alive, to simplify the tax system by doing away with the business personal property tax.

Revenue from that tax, which is collected on an array of business equipment and inventory, provides $1 billion to local governments, schools and libraries. But Pence sees it as a burden to businesses, especially equipment-rich manufacturers, who’d rather keep or reinvest the money.

One big problem with simply doing away with the tax is that neither the Republican Pence nor the GOP-controlled Legislature has come up with a way to replace the lost revenues.

That worries Jeff Quyle, a panelist who is an economic development specialist for Hoosier Energy. He’s also a Republican who sits on the Morgan County Council.

Quyle’s fears are the same voiced by local Republican and Democratic officeholders for months now. Having already cut personnel and services to offset millions lost to the 2008 property tax caps, local governments, schools and libraries will be hard pressed to do more.

Quyle, who is also president of the Association of Indiana Counties, had some ideas. The simplest: Cut the business tax and let the state replace the revenue lost by the locals. Another is to have the state take over the costs of running the courts, including probation departments, now funded by county governments. That comes up to about $1 billion statewide, he said.

Another panelist, Republican state Rep. Bob Cherry, director of local government relations for the Indiana Farm Bureau, didn’t think there was enough oxygen in the Statehouse for either proposal. Both would require legislators to do the unpalatable – raise more state revenue or cut something else.

The panel also pondered hiking the sales tax. A one-percent bump would indeed raise enough replacement revenues for local governments. But it would put Indiana’s sales tax at 8 percent – the highest in the nation – and that wouldn’t go over too well.

One more idea from the panel: If you’re going to simplify taxes, simply do away with all the tax breaks, including the popular homestead credit. That, combined with other exemptions, is so generous that many homeowners would pay no property taxes at all, especially in areas where home values are low.

The panelists projected how that would go over with the millions of Indiana homeowners. The answer: Not well.

Therein lies the simple dilemma.

“Folks seem to want to have sheriffs’ cars out on the road, and they want roads without potholes, and they want to have courthouse workers who are there first thing in the morning and last thing in the evening to serve their needs,” said Quyle.

But, he added, “Nobody wants to be taxed.”

Maureen Hayden covers the Statehouse for the CNHI newspapers in Indiana. Reach her at maureen.hayden@indianamediagroup.com. Follow her on Twitter @MaureenHayden.

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