Federal Tax Reformers Should Look to Indiana

Posted by: Erin Reece  | Thursday, September 28, 2017

In the past week, Indiana hosted both Vice President Mike Pence and President Donald Trump, each carrying a message to Congress calling for comprehensive tax reform. The administration and national observers have rightly cited the nation’s woeful federal tax system as a drag on our economy, and many have recognized Indiana as an example of what responsible, pro-growth policies can achieve.

Indiana is increasingly recognized as one of the best places to start a business or raise a family. CNBC ranks Indiana 2nd in the nation for cost of doing business. Publications, like Chief Executive Magazine, and think tanks like the Tax Foundation, consistently rank Indiana first in the Midwest and among the top ten nationally for our pro-business climate. Money magazine recently ranked four Indiana cities in the nation’s top 25 best places to live in America, with Fishers ranking first nationally.

This has meant greater opportunity for all Hoosiers. Our current 3.5 percent unemployment rate is lower than all four bordering states and the national average of 4.4 percent. We outpaced both the nation and our neighbors in private-sector job growth every single month since the worst depths of the 2009 recession. Between 2007 and 2017, Indiana’s inflation-adjusted personal income has grown faster than the national average.

This success story required a paradigm shift in state governance. In the early 2000s, Indiana was at the bottom of almost every economic outlook index. Our outdated regulations were burdensome; our budgeting practices were lax; our tax code made us uncompetitive. Hoosiers were fed up. Partnering with three successive governors, Mitch Daniels, Mike Pence and current-Gov. Eric Holcomb, legislative leaders worked across the aisle to enact sweeping reforms. We made Indiana a Right-to-Work state, fixed our unemployment insurance system, and streamlined government and regulations.

Starting in 2006, we brought much-needed tax relief to homeowners and farmers. The resulting constitutional property tax caps have saved taxpayers over $5 billion to date. In 2013, we passed the largest tax cut in state history by eliminating the death tax and cutting the personal income tax by 5 percent. Of the 41 states with an income tax, Indiana is now the third lowest at 3.23 percent. This reduction will save Hoosier taxpayers $1.7 billion through 2021.

We also restructured our business taxes to attract and retain more employers. We repealed the inventory tax, eliminated the sales tax on R&D equipment and made patent-derived income tax free. Starting in 2011, we began stair-step reductions to our 8.5 percent corporate and financial institution taxes. By 2023, both will be 4.9 percent, saving Hoosier employers an estimated $2 billion, which they will be able to reinvest in their employees and facilities.

Indiana still funded its priorities. We passed four consecutive, honestly balanced budgets (2011-2019), maintained a $2-billion rainy day fund and earned a AAA credit rating. We’re investing more than ever before in K-12 education, addiction treatment, criminal justice reform and workforce development. We just enacted our state’s largest transportation infrastructure plan, ensuring Indiana remains the ‘Crossroads of America.’ U.S. News & World Report currently ranks Indiana’s state government the best in the country. Simply put, Hoosiers are the fiscal envy of the nation.

Congress can replicate this experience by enacting pro-growth tax policies. First, we need to drastically simplify our complex federal tax code. Average Americans are forced to use tax prep services or software, while skyrocketing compliance costs impact large corporations, and small and medium-sized family businesses. At best, this complexity leads to frustration and unintentional errors. At worst, it fosters confusion and fraud. Fewer loopholes, lower rates and a simpler bracket structure would go a long way for the American middle class.

Second, we must lower our crippling 35 percent federal corporate tax rate. This uncompetitive rate — the highest in the developed world — discourages job creation, stifles innovation and encourages homegrown companies to keep earnings overseas. For a state so reliant on high-tech investment and advanced manufacturing, the federal corporate tax rate is hurting Indiana disproportionately.

Indiana has proven responsible tax reform is achievable, and America can ill afford continued lackluster growth. The time for Congressional action is now. We should all support the Trump Administration’s efforts to fix our broken, uncompetitive federal tax system.