INDIANAPOLIS | Democrats raised concern Monday that low-income Hoosiers, particularly renters, would be hit disproportionately hard by the penny sales tax increase included in Gov. Mitch Daniels' plan to cut property taxes.

The proposed sale tax hike, from 6 percent to 7 percent, would generate roughly $900 million a year, which would be used to lift child welfare and school operating costs off the backs of homeowners.

Shifting those costs to state would save property owners $61 million a year in Lake County and $46.5 million in Porter County, according to new estimates released Monday. But Democrats worry the poor, through the increased sales tax, would shoulder more of the shift than they could afford.

"Are we taxing the working poor? Are we taxing the middle-class more?" said state Rep. Mara Candelaria Reardon, D-Munster. "I would like to see a combination of both (income and sales tax increases considered). When you exclude income tax from the discussion, I think you're missing something."

Candelaria Reardon, a first-term lawmaker, is the lone region legislator on the House Ways and Means Committee, which took more than seven hours of testimony Monday during the first hearing on Daniels' tax plan.

The proposed welfare and school funding shifts would start in 2009. Meantime, the roughly $700 million a 1-cent sales tax hike would raise next year -- assuming lawmakers initiate the tax in April - would be used to cut homeowner property tax bills by about 26 percent in 2008. Renters, however, wouldn't see relief until tax caps kick in the following year.

Ryan Kitchell, director of the governor's Office of Management and Budget, said the administration is open to discussing an increase in the deduction renters receive on state income taxes.

The committee also peppered Kitchell with questions about the local spending constraints contained in Daniels' plan. Constructional tax caps included in the proposal would sap an additional $88 million a year from local government in Lake County, which already faces an astounding $279 million in annual spending cuts under existing circuit breakers set to take full effect in 2010.

"Business as usual is not going to get this done. Less spending is the only way to make this more than a shell game," Kitchell responded. "The circuit breaker hits those who have particularly high tax rates."

East Chicago, Gary and Hammond would have to swallow another $53 million in combined spending reductions to live within the caps proposed by the governor, according to estimates released Monday by the Legislature's nonpartisan forecasting arm.

The Legislative Services Agency analysis shows local government in Lake County would have to slash $367 million overall, though the proposed shift of school costs to the state would spare $26 million in cuts to public schools in Gary and East Chicago.

Daniels wants to forever cap property tax bills at 1 percent of assessed value for homeowners, 2 percent for landlords and 3 percent for businesses, beginning in 2009. Circuit breakers already on the books would cap homeowner bills at 2 percent, beginning next year, and extend a 3 percent cap to landlords and businesses in 2010.