Tony Cook

tony.cook@indystar.com

Republican legislative leaders say they need hundreds of millions of dollars in new revenue to pay for highway improvements, with much of that money expected to come from a tax hike on gasoline.

But those same lawmakers were also behind a series of tax cuts over the past five years that wiped out more than $600 million a year in state revenue — money that critics argue could have been used for roads.

Supporters of the road funding plan are pitching the gas tax increase as a “user fee.” Those who use the roads will end up paying for them.

But economists say there’s another way to look at the proposal when placed in the context of the recent tax breaks — as a large shift of the state’s tax burden from higher income to middle income Hoosiers.

That’s because the taxes lawmakers have cut since 2011 have tended to benefit wealthier individuals. They include the elimination of the inheritance tax, corporate and financial institution tax cuts and a 5 percent reduction to Indiana’s flat personal income tax.

The new tax hikes, on the other hand, will likely hit a broader socio-economic group — Hoosier motorists.

“In a sense we have cut one tax and raised the other,” said Larry DeBoer, an economics professor at Purdue University. “The income tax and corporate tax — and the inheritance tax in particular — tend to be more progressive. Higher-income people pay more. The gasoline tax is not as progressive. It is a shift then from higher income to middle income people.”

Michael Hicks, an economist at Ball State University, agreed.

“The recent tax changes, coupled with a gas tax increase, would levy a higher burden on lower- and middle-income households,” he said.

Republican leaders in the House are expected to unveil the details of their road-funding package Wednesday at 10 a.m. Incoming Gov. Eric Holcomb is expected to do the same on Thursday.

While the details remain unclear, discussions have centered on an increase to Indiana’s 18-cent-a-gallon gasoline tax as a starting point. The tax, which provides the bulk of Indiana’s road funding, hasn’t been increased since 2003.

Lawmakers are also considering new toll roads, BMV fees and new taxes on electric and alternative fuel vehicles.

Sen. Luke Kenley, a Noblesville Republican who leads the powerful Senate Appropriations Committee, has said a gas tax increase of 8 to 10 cents a gallon would cost the average Hoosier about $150 a year. Along with a motor carrier surcharge and special fuels tax, the gas tax increase could raise $350 to $400 million, he said.

Compare those amounts to the amount of revenue lost due to recent tax cuts that when fully implemented will cost the state more than $600 million a year. Those cuts include:

A 5 percent reduction to the personal income tax passed in 2013 that is expected to cost about $200 million to $300 million in each of the next few years.

The elimination of the inheritance tax in 2013 that is expected to cost about $165 million a year.

Corporate income tax cut passed in 2013 and 2014 that is expected to cost more than $190 million a year when fully implemented in fiscal year 2022.

Financial institutions tax cuts passed in 2013 and 2014 that are expected to cost more than $40 million a year when fully implemented.

Republican fiscal leaders argue that those past tax cuts — especially the income tax championed in 2013 by Gov. Mike Pence — have benefited a broad group of Hoosiers.

Others such as the inheritance, corporate and financial institution tax cuts have helped keep jobs in Indiana, which benefits a wide range of wage earners, they say.

“If you have a better corporate tax rate and if you eliminate the inheritance tax, then you are building a situation where people will want to stay here instead of moving to Florida,” Kenley said. “Then you are keeping those people and their taxes here.”

He said Indiana’s low unemployment rate and record private sector employment are evidence that the strategy is working.

But critics point out that at the time those cuts were passed, Republican lawmakers and Pence argued that state revenues were robust enough to sustain the revenue losses.

“Now there is a tax shift from the wealthier individuals down to the people without a lot of means,” said Rep. Greg Porter, the ranking Democrat on the House Ways and Means Committee. “We’re at the point that we have to back fill those cuts on the backs of working people.”

Ways and Means Chairman Tim Brown, a Crawfordsville Republican, disagreed with that assessment. He said lawmakers have cut even more than they’re seeking to raise now when including older tax cuts such as the cap on property taxes that lawmakers enacted under former Gov. Mitch Daniels.

“The issue also with road funding is you have to have a dedicated source of funding for acquisition, engineering and construction of projects that transcends a two-year budget cycle,” Brown said. “I think a lot of Hoosiers understand user fees and want to see user fees … being borne by everybody, even non-Hoosiers.”

Karen Tallian, the ranking Democrat on the Senate Appropriations Committee, said most lawmakers agree that about $1 billion a year is needed to maintain and expand the state’s roads.

But the debate about how to fund those improvements raises questions about whether prior tax cuts came at the expense of needed services.

“Let’s just say the tax policy is not very consistent. We giveth and we taketh away,” she said.

Call IndyStar reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.