INDIANAPOLIS – Could Indiana one day end its state income tax? This is a question that some state legislators want to address more closely.
One of the top priorities for Indiana Senate Republicans this term is a bill that would create a commission to study the feasibility of eliminating the Indiana state income tax.
“We’re looking for transformative change,” said State Senator Travis Holdman (R-Markle), the author of the bill.
Holdman said he believes Indiana is in a good position financially to consider this type of change in its tax policy.
“I think the goal for Indiana should be to completely eliminate the individual income tax rate in the coming years,” Holdman said.
Under Holdman’s bill, the commission would examine Indiana’s tax policies and consider the possibility of ending the state income tax. The group will issue a report with recommendations in about two years.
According to state projections, Indiana is expected to bring in nearly $7.5 billion in income tax revenue this fiscal year. That’s more than a third of the state’s total revenue for the year.
“The question is, where are you getting $7.5 billion from?” said State Senator Fady Qaddoura (D-Indianapolis).
Qaddoura said he wasn’t opposed to exploring the idea but was concerned the end of the state income tax would mean an increase in other taxes.
“If you look at other states across the country that abolished their state income taxes, they had other replacement mechanisms,” Qaddoura said.
Gov. Eric Holcomb expressed mixed feelings about the idea when speaking to reporters. While this could be a way of making the state more attractive to potential residents, income tax revenues make up a significant portion of state funding.
“If you’re talking about eliminating a multibillion-dollar tax, you either have to replace it or forego it,” Holcomb said. “And that’s why I’m most interested in what the alternative is.”
If the state income tax is eliminated, there would be no impact on the county’s income taxes, Holdman said.
Last year, the Indiana legislature approved an income tax cut, gradually lowering the tax from 3.2% to 2.9% over the next few years as long as the state meets certain revenue growth benchmarks.