Republican Gov. Eric Holcomb told reporters Thursday “we shall see” when asked about the tax cut possibility.
Some top Republican legislators have been talking about proposing reductions to Indiana’s 7% sales tax and other taxes for the new legislative session starting in January, even amid concerns over the possibility of an economic slowdown.
Holcomb acknowledged the state’s revenue growth is certainly influenced by federal COVID-19 relief spending.
“But we do know that the economy is growing across multiple sectors,” Holcomb said. “The revenue is coming in.”
State government saw overall tax revenue grow 14% during the last budget year as collections bounced back stronger than expected from the COVID-19 pandemic recession, pushing its cash reserves to $3.9 billion as of June 30. Tax revenue has kept growing, with the state collecting about $560 million, or 10%, more than expected during the four-month span through October.
The size of the state surplus is triggering Indiana’s automatic tax refund law, with about $545 million being divided evenly among taxpayers through an estimated $170 credit on state tax returns submitted next year.
Holcomb said a factor in the tax cut debate will be trying to gauge when economic growth naturally slows and how cutting taxes will affect future state revenues.
“You can’t also ignore that we are taking in more revenue at this time and so this will be a discussion that I know will occur,” Holcomb said.
The state’s two largest sources of revenue are the sales tax and individual income.
Indiana’s 7% sales tax is among the highest in the country and greater than any surrounding state. Cutting a full percentage point off that tax rate would cost about $1.2 billion, according to the Indiana Office of Management and Budget.
Lowering Indiana’s individual income tax rate to a flat 3% from the current 3.23% would cost about $400 million annually. Indiana’s income tax rate is the lowest of all neighboring states.