Fiscal Wonks Suggest Sales Tax Changes, But Lawmakers Skeptical

Oct 3, 2014

The Indiana Fiscal Policy Institute says the state could tax more items and reduce its effective rate by as much as two percent.
Credit Michael Smith / https://www.flickr.com/photos/digitalcolony/4201243480

The Indiana General Assembly has enacted cuts to the corporate income tax, financial institutions tax, inheritance tax, individual income tax and business personal property tax in the last three years.  Could changes to the sales tax be next? 

Indiana’s state sales tax rate – seven-percent – is one of the highest in the country.  And Indiana only taxes hard goods, not services.  So there’s no sales tax on a doctor’s visit, but there is on the purchase of medicine. 

Indiana Fiscal Policy Institute President John Ketzenberger says the early results of a study his organization commissioned on the sales tax shows broadening the base would allow Indiana to significantly lower its tax rate.

“So instead of a seven-percent state rate, the estimates are that it could be as much -- or as low, rather -- as four-and-a-half or five-percent,” Ketzenberger says.

And Ketzenberger says while the sales tax is regressive – that is, it’s more burdensome to lower income people – broadening the base would slightly reduce its regressivity.  Senate Tax and Fiscal Policy Committee Chair Brandt Hershman (R-Buck Creek) says that’s a big change for the state to make.

“Theoretically, the idea of broadening the base makes some sense but I think that’s a very long term goal and not something that we will entertain in the short term,” Hershman says.

Ketzenberger says, after the significant tax cuts of the last several sessions, he also expects lawmakers to take a pass on further changes and evaluate the impact of previous cuts.