- Associated Press - Thursday, February 6, 2014

INDIANAPOLIS (AP) - Indiana Gov. Mike Pence is keeping quiet about negotiations underway to cut the business equipment tax, a proposal that a new report shows might only bring slight economic growth to the state.

Pence was tight-lipped Thursday during a conference with reporters at his Statehouse office, refusing to give details on exactly how the tax cut proposals should be changed to shield local governments from an estimated $1 billion a year loss in revenue.

“I don’t want to negotiate this in public,” Pence said. “We have a legislative process.”

Two separate proposals to cut the business equipment tax have been approved by the House and Senate. The House plan would give counties the option of eliminating the equipment tax, while the Senate proposal would eliminate it for small businesses.

The governor’s guarded remarks came the same day that the nonpartisan Indiana Fiscal Policy Institute released a report detailing problems with the proposed tax cut.

“There is scant empirical evidence that directly relates economic growth to the elimination of the tax on inventory in Indiana,” the report reads.

The equipment tax also has little effect on whether businesses relocate to other states, according to the report. The claim counters arguments by Pence that the measure would make Indiana competitive with surrounding states that cut or lowered similar taxes.

Illinois and Ohio ended business equipment taxes, and Michigan is working to phase out similar taxes.

Eliminating the tax on business equipment in Indiana likely would have the most impact on a county to county level, IFPI President John Ketzenberger said. Given the option under the House bill, counties that nix the tax would have an advantage in attracting business.

“If you’re talking about lifting the entire state economy,” Ketzenberger said, “it doesn’t make sense for counties to be poaching jobs or investment from one county to another.”

Mayors and Democrats have blasted efforts to cut the equipment tax at the expense of local governments and taxpayers. Pence later said he would support at “phase-out” of the tax and some state aid to help soften the impact.

Pence’s vow to prevent an “unduly burden” on businesses is further complicated by tax caps enshrined in the state’s constitution, Ketzenberger said. Cities and counties still are coping with lost tax dollars after an amendment to the state constitution topped out local property taxes 1 percent, and raising taxes to compensate for the equipment tax would only place more homeowners at the cap.

How Pence and lawmakers plan to deal with that is unclear.

“We’re looking at a broad range of options to give communities the ability to meet their needs to not face hardship because of this reform,” Pence said. “I’m confident we’re going to put together a menu of options to do that.”

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