By Matt Tully in the Indianapolis Star:
Gov. Mike Pence is right when he says the state’s tax on business equipment isn’t a good tax.
He argues that because it is levied on so many basics — from office computers and copy machines to restaurant ovens and manufacturing devices — it discourages companies from updating, expanding and investing in their operations. There is validity to those points.
But there are a number of serious flaws to the governor’s plan to eliminate or phase out the tax, which sends hundreds of millions of dollars into local government coffers annually.
First, while the tax doesn’t make a lot of sense, you can say that about a litany of taxes. For instance, there’s the one that finances Lucas Oil Stadium on the backs of people going out for pizza or burgers. Or the one that forces families to pay $2,000 or so in sales taxes when they trade in their junker for a new minivan.
I could go on. But the bottom line is that there are many taxes that don’t quite make sense but do pay for essential services. And if we’re going to get rid of one of them, which at this point we shouldn’t, must it be yet another valentine to the state’s most powerful and politically connected business organizations? Must it be one that would significantly lower costs for some businesses but lower the quality of life for many residents?
“I just think they have their priorities wrong,” House Democratic Leader Scott Pelath said of the Pence administration. “There’s no evidence that getting rid of this tax will bring one job to Indiana. But there will without question be a shift in the tax burden to workers, homeowners and consumers, and it will lead to more shortfalls for local governments.”
He’s right on all accounts. And he zeroes in on the second problem with the proposal: the impact it could have on local communities. According to a state analysis, eliminating the tax would lead to both increased property taxes for homeowners and massive reductions in revenues for schools, libraries and other units of close-to-home government. Even a slower phase-out or reduction of the tax, which Pence has said he could accept, would cost the locals dearly. And don’t forget, this is about basic services: things such as policing, pothole repairs, parks, teachers and, yes, snow plows.
Pence says the tax cut will attract jobs. But let’s remember that the more we cut, the harder it is for Indiana’s cities to invest in amenities that can attract the smart college graduates and others who want to live in a vibrant, high-quality community. The governor says it is possible that counties could decide individually whether to cut the tax, but that would simply lead to more economic flight from struggling counties to wealthier ones that can absorb the hit. And, finally, there is talk at the Statehouse about replacing the tax with another, but it appears that would involve shifting a good chunk of the burden from businesses to people.
Mayors and other local leaders have spoken about the tax plan with concern, at the least, and outright panic in other cases. That’s understandable. Property tax caps have left communities and schools strapped in recent years. Then here comes Pence with a plan that would further squeeze them.