Expert: Indiana governor's proposed tax rebate could add fuel to inflation fire

LOUISVILLE, Ky. (WDRB) -- Indiana's governor wants to give back about $1 billion to taxpayers to help battle inflation, but some experts are skeptical about the plan.

Gov. Eric Holcomb announced a plan that would give every Hoosier taxpayer about $225 in addition to the $125 they are already getting in automatic refunds, according to a press release from his office.

Holcomb says he is aiming to help Indiana families through a tough economy, but one expert says that approach could backfire.

"It's actually going to be counterintuitive," said Jose Fernandez, an Economics professor at the University of Louisville.

Fernandez says nearly all consumer goods are connected to oil prices. Commodities like gas, food, and lumber are becoming more expensive, as the supply of oil continues to lag behind pent-up demand.

"People are tired of being closed up for two years, and now they're ready to spend their life the way they're used to, but the supply side of the economy hasn't caught up," Fernandez said.

Higher prices for less fuel mean slower and fewer transported goods, and Fernandez is convinced that encouraging more spending could drive demand even higher -- and the supply even lower.

"Now I'm just giving you more dollars to chase those fewer goods," Fernandez said, referencing Holcomb's tax rebate idea. "I'm just increasing demand for all those things, which only pushes prices up higher and higher. Which is exactly the opposite of what we want to do."

Holcomb could call a special session to get the tax refund, which has bipartisan support, approved.

Not everyone agrees with Fernandez, including Indiana Rep. Zach Payne, a Republican who represents the state's 66th District. He says the extra money will help struggling Hoosier families.

"Expediting another automatic taxpayer refund is an efficient and responsible way to provide some relief quickly," a written statement from Payne read.

Fernandez believes the money would be better spent elsewhere. "If you have that surplus available, why not use it on schools, why not use it on police officers, on firefighters, on our roads?"

If approved, residents would see the $225 deposit in their bank accounts at some point after the special session.