Good news for business is good news for us all. Indiana’s corporate income tax was cut from six to 5.75 percent this fiscal year and is scheduled under current law to fall further to 4.9 percent by 2021. But this isn’t enough: The state Legislature should fully repeal the corporate tax to make Indiana a national hotspot for businesses and create thousands of new jobs for Hoosiers.
Repealing the state corporate tax would attract businesses from neighboring higher-tax states and encourage new investments. A University of Richmond study measured the effect changes in state corporate income taxes had on job growth and concluded that lower corporate taxes “have a significant and positive effect on employment growth.” Based on their results, if Indiana completely repealed its corporate tax in 2021, the state could add between 4,900 and 8,200 more jobs that year, and even more every following year. At this rate, it would take only four to seven years to create as many jobs as there are unemployed people in Indianapolis today.
In other words, the government can create jobs merely by getting out of business’s way.
Repealing the corporate tax would especially benefit the residents of Gary, one of the poorest cities in Indiana. Gary is part of the Chicago metropolitan area and is just a 30 mile drive from downtown Chicago. A Wesleyan University study suggests that many businesses would move from high-tax Chicago to Gary if Indiana repealed its corporate tax, to cash in on tax savings. This would bring new job opportunities for Gary residents and increase the city’s property and income tax revenue, potentially funding education and infrastructure improvements.
Still, critics will insist that it’s fiscally irresponsible for Indiana to get rid of its corporate tax — but the facts simply do not support that claim. Indiana is actually one of the best-positioned states to get rid of its corporate tax. Our state has balanced its budget every year since 2013, despite also reducing both corporate and personal income taxes. We even boasted a $100 million budget surplus in the 2018 fiscal year, leaving more than enough room to ease the job-killing tax burden.
In its latest forecast, the Indiana Department of Revenue estimated that in 2021, when Indiana’s corporate tax drops to 4.9 percent, the tax will bring just $793 million in revenue, less than 5 percent of the budget. This means Indiana could easily get rid of its corporate tax without running up any debt if the state ends some sales tax exemptions and dubious tax loopholes it offers to some companies in the name of “business incentives.”
For instance, under political pressure from President Donald Trump in 2016, Indiana gave $7 million in tax exemptions to the air conditioner manufacturer Carrier to convince the company not to leave the state. However, subsidies like this do not create any jobs but do encourage other companies to demand handouts from the government.
Carrier’s case is the most well-known example of questionable government subsidies in Indiana, but it’s certainly not the only one. The Indiana Economic Development Corp. is a state department dedicated to encouraging companies to come to or stay in Indiana. Just in this fiscal year, the IEDC will spend more than $100 million in state funds to give tax breaks and grants to businesses such as Carrier. But studies on similar programs in Arkansas and Michigan show these programs do not effectively create jobs, because companies game the system by inflating job numbers to get bigger subsidies.
The state also misses out on billions in tax revenue by exempting services like veterinarians, tanning salons, taxidermy and more from the sales tax. According to the Indiana Fiscal Policy Institute, imposing the sales tax on all services while still exempting medical and legal services would have resulted in more than $1 billion in revenue in 2009 alone. That figure is likely to be much larger today.
This means Indiana can fully fund repealing the corporate tax by ending its corporate welfare programs and sales tax exemptions — and even leave room to lower other taxes.
Indiana Republicans control the state capitol and have long campaigned on lower taxes, balanced budgets and more jobs for Hoosiers. To make good on their promises, the best thing they can do is get rid of the job-killing corporate tax once and for all.