Small-business owners and other taxpayers in Indiana will have to wait until March or April to get a clearer idea of whether Gov. Mike Pence’s plan to cut personal income taxes by 10 percent over two years will make it through the state budget process.
“We have to see revenue projections later this spring to know whether or not we can afford to do that,” State Rep. Milo Smith, R-Columbus, said a few days after Pence’s inauguration. “We can’t spend more money than we take in.”
Republican Pence presented his two-year budget to the General Assembly on Tuesday, outlining spending of $14.4 billion in 2014 and $14.6 billion in 2015.
Each figure represents a 1.4 percent increase from the previous year, with spending in most state categories held even with prior years, other than education, transportation and Medicaid.
In his bid to cut the personal income tax, Pence’s theory is that such a policy would give a much-needed jolt to small and midsized businesses in the state, encouraging them to hire more Hoosiers and expand.
Many small-business owners agree, with some suggesting that a 10 percent cut in personal income tax rates in Indiana would offset the business costs of federal health insurance reform or “Obamacare” as it has become known.
“I think any tax cut, particularly on income, is going to be significant in helping expand the economy,” said Deb Steele, who owns Gramz Bakery in downtown Columbus. “It’s a big thing for small business if people have money in their pockets to spend.”
Joe Lohmeyer, who owns Lohmeyer Plumbing in Columbus, said lower personal income tax rates also could help attract new companies to the state.
“From a personal standpoint, I’d say the less money the government has to spend, the less they can squander it,” Lohmeyer said.
Personal income tax rates affect businesses, especially those set up as
Sub-chapter S tax corporations or as partnerships that allow profits to flow directly to the individual owners.
“If there was a tax cut, I anticipate it helping our business,” Steele said. “Our expenses, including the portion of payroll taxes that we pay, ought to go down.”
Still, a number of lawmakers wonder whether Indiana can afford to trim personal income taxes and still bring in enough revenue to take care of needed services, run schools and repair roads.
“The budget that Gov. Pence submitted, the way it stands right now with all its assumptions, it’s a balanced budget ... today,” said state Sen. Greg Walker, R-Columbus.
But one-quarter of a point variance in the economic forecast can reduce revenues by tens of millions of dollars. And Walker said no reasonable judgment can be made whether it’s wise to cut taxes until sometime in April after a few more months of revenue results and economic projections are reviewed.
State Rep. Jim Lucas, R-Seymour, said cutting taxes probably would be applauded by many taxpayers, “but our duty is to be responsible to the budget.”
Lucas, a small-business owner himself, discounted the notion that first-term Gov. Pence will get exactly what he wants from the Republican-controlled Statehouse.
“(It) doesn’t mean we have blind loyalty to what one prominent member of the party desires. There is a smart way to govern, and we have to think this through,” Lucas said.
“My constituents understand we have to live within our means.”
Phil Gaskins, owner of Phil’s Garage, an auto repair shop on Center Street in Columbus, said he thinks a personal income tax cut would aid the middle class.
“It’s middle-income people who seem to be having the most trouble holding onto their jobs,” Gaskins said.
Mic Peters, who owns
Peters Heating and Air Conditioning on 25th Street, said consumer spending in his industry has been weak the past several years as people try to keep older furnaces and home cooling units running rather than buy new ones.
A state income tax cut would “definitely be a plus,” Peters said, adding that the tight economy has led him to reduce his payroll from a peak of 15 employees a few years ago to eight people today.
But Peters said even a 10 percent cut in state personal income taxes may not be enough by itself to persuade him to hire again until the U.S. economy shows more life.
“It’s our fewest number of people in 40 years, and I don’t know what to expect this year,” he said.
“You tighten your belt, and you do what you have to do.”