INDIANAPOLIS — Veterans would pay no state tax on their military retirement income under legislation overwhelmingly approved Tuesday by the Indiana House.
House Bill 1010, which now goes to the Senate, phases in the retirement income tax exemption, which also would apply to surviving spouse benefits, over a four-year period retroactive to the start of 2019.
State Rep. Bob Cherry, R-Greenfield, sponsor of the measure, said eliminating the state income tax on military retirement benefits will lure more individuals leaving military service to Indiana, and help meet the ongoing demand for well-trained, highly skilled workers.
"These are good citizens, they've paid their dues and all of our surrounding states are giving this exemption already," Cherry said.
According to the nonpartisan Legislative Services Agency, exempting military retirement benefits from Indiana's 3.23 percent income tax will reduce state revenue by approximately $15 million a year when fully implemented during the 2023 budget year.
That high cost last year prompted state lawmakers to scuttle a similar plan.
But the governor, in his Jan. 15 State of the State address, urged the General Assembly to take another look at the proposal "so we can attract and retain talented patriotic veterans — who we know are some of the most experienced, focused and loyal workers anywhere."
That all sounded quite familiar to state Rep. Karlee Macer, D-Indianapolis, who unsuccessfully pursued a veterans retirement income tax exemption for several years before Holcomb and House Republicans got on board.
"I'm grateful that the governor thinks that my idea is a great idea, too," Macer said.
But state Rep. Jim Lucas, R-Seymour, believes the proposal is unconstitutional because the Indiana Constitution prohibits the General Assembly from granting "privileges and immunities" to any citizen, or class of citizens, that are not equally available to all citizens.
"We're singling out veterans in this. What about police officers that retire? What about teachers? We don't need them in our state?" asked Lucas, a Marine Corps veteran.
Lucas said if the House is serious about helping veterans it would put the revenue it's about to give up toward reducing Hoosier veteran suicides, which claimed the lives of 832 former servicemembers between 2011 and 2015, according to the Indiana State Department of Health.
Alternatively, Lucas said the General Assembly simply should eliminate for all Hoosiers the state income tax that produced $5.8 billion of Indiana's $15.5 billion in general fund revenue during the 2018 budget year.
"We're using the income tax, by eliminating that, to lure people to stay in our state. Let's do away with it altogether," Lucas said. "Let's have the courage to find and replace the revenue, and let's treat everybody equally."
Lucas persuaded two other lawmakers, state Reps. Matt Hostettler, R-Fort Branch, and Curt Nisly, R-Milford, to join him in voting against the proposal.
The other 95 representatives in the chamber, including the entire Northwest Indiana delegation, voted in favor of the plan.