INDIANAPOLIS | Gov. Mike Pence is certain reducing Indiana's personal income tax rate will create jobs, despite the doubts of legislative leaders and the increase in unemployment that followed distribution of the state's automatic taxpayer refund.
The first-year Republican said last week Indiana risks losing the "jobs war" if lawmakers fail to enact his $500 million tax cut. He made a centerpiece of his governing agenda a 10 percent reduction in the state's income tax rate to 3.06 percent from 3.4 percent.
"There can be no better way for us to signal our commitment to fiscal responsibility and our commitment to economic growth than to stay in the fight and be in the fight and to win the fight for lowering the tax burden on Hoosiers and most Hoosier small business," Pence said.
Pence noted over the past decade, 62 percent of the nation's new jobs were created in the nine states without an income tax. A white paper issued by Pence's budget staff suggests that, against that backdrop, Pence's tax cut proposal doesn't go far enough.
"Indiana, I truly believe, is in a competition for jobs. States that understand the nature of that competition have the best economies in the country," Pence said.
Critics question whether slow growth in Indiana's economy is due to its income tax rate. Most states without an income tax, including Texas, Wyoming, Alaska and South Dakota, are growing due to a booming -- and heavily taxed -- energy sector that Indiana simply doesn't have the natural resources to compete with.
So far, the Republican-controlled General Assembly isn't buying Pence's tax cut rhetoric.
Lawmakers are expected to approve a two-year state budget, possibly as soon as Friday, that includes some $500 million in tax cuts, but likely no more than a 0.1 percent reduction in the income tax rate.
Senate Appropriations Chairman Luke Kenley, R-Noblesville, said Indiana will get a bigger bang for its tax-cut bucks by eliminating the inheritance tax and reducing the corporate income tax rate by 1 percent, as called for in the Senate budget.
"That's an immediate cut to somebody who is in business who says, 'OK, I've got money, I'm going to make investments, I'm going to hire people,'" Kenley said.
Under Pence's plan, a Hoosier earning $50,000 a year would see their tax burden drop $170. A person earning $1 million a year would get a tax cut of $3,400, which is still $11,680 short of being able to hire a full-time worker at the minimum wage with no benefits.
House Democratic Leader Scott Pelath, D-Michigan City, said if Indiana is going to cut taxes, then lawmakers should back Pence's plan, because it will benefit more middle-class Hoosiers.
However, Pelath believes most Hoosiers would rather that money be put toward improving the state's schools and roads, reducing the cost of higher education, expanding access to Medicaid, protecting the environment and other functions of state government neglected under former Republican Gov. Mitch Daniels.
Daniels also created the automatic taxpayer refund, which repays a portion of the $2 billion state budget reserve to Hoosiers.
Since January, some $360 million, which is 72 percent of the value of Pence's proposed tax cut, has been returned to taxpayers.
The money has not created jobs.
Indiana's unemployment rate stands at 8.7 percent, up from 8.3 percent in December, and the state shed 11,000 private sector jobs in March, according to the Department of Workforce Development.