INDIANAPOLIS — Could Indiana someday end its state income tax? That’s a question some state lawmakers want to take a closer look at.
One of the Indiana Senate Republicans’ top priorities this legislative session is a bill that would create a commission to study the feasibility of eliminating Indiana’s state income tax.
“We’re looking for a transformational change,” said State Sen. Travis Holdman (R-Markle), the bill’s author.
Holdman said he believes Indiana is in a good position financially to consider that kind of change to its tax policy.
“I think the goal should be for Indiana should be to totally eliminate the individual income tax rate in years to come,” Holdman said.
Under Holdman’s bill, the commission would study Indiana’s tax policy and consider the possibility of ending the state income tax. The group would issue a report with recommendations in about two years.
Indiana is expected to bring in nearly $7.5 billion in income tax revenue this fiscal year, according to state projections. That’s more than a third of the state’s total revenue for the year.
“The question is, where do you get $7.5 billion from?” said State Sen. Fady Qaddoura (D-Indianapolis).
Qaddoura said he’s not opposed to studying the idea but is concerned the end of the state income tax would mean an increase in other taxes.
“If you look at other states across the nation, those who eliminated their state income taxes, they had other replacement mechanisms,” Qaddoura said.
Gov. Eric Holcomb shared mixed feelings about the idea when speaking with reporters. Although it might be a way to make the state more attractive to potential residents, he said, income tax revenue makes up a significant portion of state funds.
“When you talk about doing away with one tax to the tune of multiple billions of dollars, you have to either replace it or go without,” Holcomb said. “And so that is what I’m most interested in seeing is what is the alternative.”
If the state income tax is eliminated, that would not affect county income taxes, Holdman said.
Last year, Indiana lawmakers approved an income tax cut, reducing the tax from 3.2% to 2.9% gradually over the next several years as long as the state meets certain benchmarks for revenue growth.