Neither the House bill nor Senate bill totally eliminates the tax that manufacturers and other businesses pay on equipment. But Pence said again that his eventual goal is to match other Midwest states that have repealed taxes like it.
Last week, mayors from the state’s six largest cities met with Pence to press for details on his often-repeated promise to mitigate the local harm caused by his plan. They left without answers, according to those who attended.
“I don’t know any mayor who is saying, ‘Let’s get rid of this tax without replacing the revenue,” said Terre Haute Mayor Duke Bennett, a Republican, who took part in the meeting.
Matt Greller, executive director of the Indiana Association of Cities and Towns, said local leaders are frustrated.
“We have no understanding of what the governor means when he says there will be no ‘undue harm.’ We don’t know if that means $1 or $1 billion,” said Greller.
The Fiscal Policy Institute’s report explains the local officials’ anxiety.
The report found that local governments are still grappling with property tax caps enacted in 2008. Those alone will cause $800 million in lost tax revenue next year – money that would have been used to pay for police, school buses and other public services.
Eliminating the business tax would increases those losses by another $687 million.
The report also notes that property tax caps, now locked into the state Constitution, limit lawmakers’ ability to “re-balance the tax burden among homeowners and business interests.” That means that a reduction in business tax revenue would automatically be shifted to other property owners.
Tax cuts for businesses decrease costs and add to profitability, the report notes, and can encourage companies to relocate or make new investments. But the report also says tax cuts “are most effective where the loss of tax revenue to governments does not reduce public services, especially on highways, police and fire protection, and perhaps education.”