Commentary: The tax debate is poised to worsen
The changes in Senate Enrolled Act 1 mean that families, not businesses, will pay more.
Hoosiers should expect the next couple of years to be full of hasty and ill-conceived tax proposals as the failure of last year’s tax law sinks in. The Indiana Republican Party feels rushed to make more changes before voters experience negative effects.
Last year’s tax changes came in response to voter frustration over the consequences of inflation on their taxes. That was understandable and could’ve been largely mitigated with minor changes to assessment.
Instead, the Indiana General Assembly delivered the biggest tax cut in state history to the business community. The size of the tax cut was so large that it is already leading to cutbacks of key services across the state. And, by key services, I mean local police patrols, city pools, fire departments and park systems.
The Indiana legislature did more to defund police last year than all the woke mayors in the country, combined. But, that’s not the part that is causing problems.
The property tax cut to families was laughably small. By next year, every family in Indiana will pay more taxes than they did in 2025. At the same time, 85% of businesses will have seen dramatic tax cuts, with the largest — data centers, warehouses and factories — experiencing a windfall.
The business tax cuts were so deep that the legislature had to provide local governments with ways to make up parts of their losses. So, last year, lawmakers gave cities and counties the option to raise local income tax rates. School corporations didn’t have that option, so they must take referenda to the voters. A bit more than one-third of Indiana school corporations will ask voters for more money this fall.
The changes in Senate Enrolled Act 1 mean that families, not businesses, will pay more. That will erase much, but not all, of the tiny tax cut families got ($300 or less per year). But the real stinger will be the income tax hikes that are certain to erase all the property tax cuts from SEA 1.
Over the next three years, Hoosier families will see their tax bills rise while public services everywhere will be cut. Expect legitimate anger from voters.
The surest way to know I’m right about this is that the legislature delayed the income tax phase-in until after the 2028 election. Yet lawmakers are busy conjuring some of the worst taxing proposals anywhere in the nation.
The first incoherent step was Gov. Mike Braun’s statement that he wanted to eliminate the property tax on retirees and those who’ve paid off their mortgage. The property tax is a tax on wealth. Supporting the elimination of a wealth tax on the wealthiest citizens is pretty clear evidence that you don’t know why you are collecting taxes in the first place.
I guess I don’t think
they really do.
The second, even worse proposal is being run through town halls by J.D. Prescott, R-Union City. He proposes to eliminate property taxes entirely (which coincidentally would be a windfall for his family farm). He’d like to replace them with a 7% sales tax on services.
His math is too bad to take seriously. But, that’s not anywhere near the worst problem with his plan. Eliminating the property tax and moving it to sales taxes shifts the tax burden heavily to young families.
From a pure equity standpoint, shifting the tax burden from wealthy to poor (young) families will dramatically damage Indiana’s economic prospects. Such a tax cut would be great for me. I’m a 63-year-old military retiree with a paid-off house. It might even save me enough money to visit one of my three kids who’ve relocated to Tennessee, North Carolina or Colorado.
To be honest, I’d rather Indiana offered economic opportunity for young people here rather than tax cuts to geezers. I suppose that makes me a woke communist.
The tax shifts in Prescott’s plan break down local governments, eliminate pressure for economic improvements and destroy our bond ratings.
The plan would collect taxes statewide and then return them to local governments based largely on population. This largely eliminates the role of local government to make places more attractive. Heck, under this plan, the governor might as well appoint mayors and county commissioners.
Michael J. Hicks is professor of economics and the director of the Center for Business and Economic Research at Ball State University. He previously served on the faculty of the Air Force Institute of Technology’s Graduate School of Engineering and Management and at research centers at Marshall University and the University of Tennessee. His research interest is in state and local public finance and the effect of public policy on the location, composition, and size of economic activity.
The views expressed here are solely those of the author and do not represent those of funders, associations, any entity of Ball State University, or its governing body. Also, the views and opinions expressed do not necessarily reflect the views of The Indiana Citizen or any other affiliated organization.
