In his run for governor, Mike Pence is floating the notion of cutting Indiana’s income tax rate and eliminating its estate tax. Not really a rational plan for a state with a $2 billion debt to the feds caused by a years of a weak economy and even more years of underpaying into the unemployment insurance fund. State pension funding has also been less than sufficient for probably decades.
And, I’ve been over my aversion to getting rid of estate taxes while we still have other sorts of taxes. As taxes go, in my opinion, the estate tax is less objectionable than an income tax. I figure a guy has a greater claim to all of his income at the end of a work week than an heir has to someone else’s estate.
Promises of tax cuts are just a version of the old campaign game of “everyone can have what they want and we never have to pay for it.” It works because people can’t or won’t do the math to see that these things rarely add up.
Doug, you have to be careful with therms. Actually it’s the state inheritance tax he’s talking about eliminating. There is actually a state and federal estate tax that only apply to the wealthiest people. The state inheritance tax applies to all transfers pending death and is really a tax on the recepient of the inheritance. (Though the estate pays it.)
The state inheritance tax is a joke. It is extremely complicated to figure out and raises very little revenue. An attorney could spend 2 hours doing an inheritance tax return at $200 an hour, $400 total to find out the tax is $150. But you have to do it on EVERY case no matter how small the estate is. It’s a pain in the rear. It should be eliminated. It raises very little revenue anyway.
Indiana’s inheritance tax generated $148.7 million in fiscal 2011.
Im more interested in his timing. He was silent, he even said that he would not talk about issues until the primary.Now all of a sudden he is talking? Whats up with that. Is Gregg and Wallace starting to get to him?
this may not be the romp that he thinks it will be.From the Tea Party blogs that I have read, they are not happy with the pretty boy Pence.
Unfortunately the “promise” to lower taxes will greatly appeal to some voters. Some thought about the subject causes some concerns including: state’s debt to retirement funds is now very very large and an example of deferred payment to generations to come (remembering the state can not be in debt, but can defer payment (my banker is so narrow minded he will not accept the same technical point)); state does owe federal considerable money due to lack of will to impose a realistic unemployment tax; and, if you are happy with the cuts in such things as education and other services (will have to include medical services) then a vote for lowering taxes will be promising. On the other hand since the governor does not establish the budget and does not set the tax rates (income, estate, or others) it does not cost much to make promises, but may sell well with the voters.
Paul: I generally agree with you on everything you state, but an attorney only has to do the IH-6 if inheritance tax is owed. That being said, the scenario of spending $1000 (or more) for $200 of inheritance tax is certainly a fairly frequent occurence.
Doug: It also should be mentioned that the total tax revenues received due to the inheritance tax comprises a small percentage of Indiana’s overall tax revenue.
Paul C,
Often it isn’t until after you fill out the form that you’ve figured out there are no taxes owed.
Are you sure though that the Marion County Probate Court doesn’t require that fill out the form? I agree it’s a slam dunk if it’s a small estate and just the spouse is inheritating….below the $100K exemption.
The current Indiana inheritance tax is extremely discriminatory to same sex couples. A married couple gets a complete pass as to property passing from one to the other upon death. That happens if they had a quick Vegas marriage but one didn’t survive an auto accident five minutes later. On the other hand, a gay or lesbian couple with house and maybe kids to raise, together some 40 years are treated as Class C beneficiaries under the statute, meaning the same as “strangers”, getting a measly $ 100 exemption and then a tax rate of from 10 to 20%. I’ve known houses having to be sold to pay it. Worse yet, unlike married couples, the surviving partner may end up paying tax on his/her own portion of joint property. It’s a myth to say that just going to a lawyer can resolve this problem and make the situation just like that of married couples. So yes, either do away with the dammed thing for everybody, or recognize the gross inequality it presents.
Paul: Yeah, you probably should do the return in borderline situations too. I don’t know about your other question, as I don’t practice in Marion County.
Don: You are 100% correct that the inheritance tax hits gay couples much more than straight. As you are aware, Indiana does not recognize gay marriage, and is not sympathetic to the concerns of unfair treatment towards homosexuals. I am not saying this is right, but it does mean that the state has chosen the latter of your two options.
That being said, there are indeed some planning opportunities to reduce taxes for same sex couples. I can understand your feeling that they shouldn’t be necessary, but if we eliminate the inheritance tax, those issues would go away too.
So, an unintended consequence of the Pence plan would be a benefit to same sex couples? Ironic.
@Mary: If Pence reads this blog, that’s the end of that plan.
Indiana tax policy over the last someodd years has been very property tax focused (reflecting the interests of Luke Kensley and Mitch). It has been a huge mistake, and we would have been much better off economically to go after the income tax, which is a jobs killer.
The property tax is more similar to a wealth tax than an income tax, and is a much more efficient tax as a result. It doesn’t discourage work and productive investment as an income tax does.
So… I’m with Pence on this one. In fact, I would double down and work to completely repeal the income tax, including local income taxes. No policy would do more to improve the state economy, not even right-to-work. The combination of RTW and no income tax is pretty powerful, it would shift Indiana from a midwestern type economy to a sunbelt type economy.
Buzz: Can you explain how a state income tax on individuals is a jobs killer? I can understand federal (higher) income tax affecting jobs, but at least in our lower tax counties, the rate seems a bit low to truly affect the # of jobs created.
One benefit of the income tax is that non-residents pay it. I always have a hard time balancing that positive with the somewhat more stable property tax.
Paul, just take a look at the list of fastest growing states (maybe before the recession, which screwed things up all over). The fastest growing states have no income tax (Texas, Florida, Washington, North Dakota, Wyoming, New Hampshire, etc.)
I’ll give you that Indiana, even with local income taxes, is not a high tax state in that regard. It could be worse, we could be New York or California. But that doesn’t change the fact that the income tax kills jobs.
What is the mechanism for the job killing? It probably has something to do with small businesses. Every dollar that is taxed from a small business is a dollar that can’t be reinvested in that business. Since small businesses are the ones creating the jobs, that’s the link from income taxes to economic growth.
It also kills jobs when we have a school system setup to crank out kids for manufacturing jobs and the only thing we have to try to get them are distribution and service jobs. And the kids who actually do graduate tend to head elsewhere.
That said, if we fund all our obligations to the Feds, then let’s talk about tax cuts. Unless Mike Pence wants to be known as one of those Republicans who is all about tax cuts regard less of the impact on balancing the budget…