CHICAGO – Indiana lawmakers were poised Friday to approve a two-year, $30 billion budget that provides $1.1 billion in tax relief over the next four years through a series of tax cuts that includes a 5% drop in the income tax.
Even though the income tax change fell short of the 10% cut he sought, Gov. Mike Pence praised the agreement reached Thursday with legislative leaders completing work on a budget package and paving the way for a Friday vote.
“The agreement reached between our administration and legislative leaders will be the largest state tax cut in Indiana history,” the Republican governor said in a statement. “The combination of a 5% individual income tax cut, inheritance tax repeal and additional tax relief for businesses is the right tax relief at the right time and will give a much needed boost to working families, small businesses and family farms.”
The state carries top credit marks.
The agreement was reached Thursday with Senate President Pro Tem David Long and Speaker Brian Bosma, both Republicans. Republicans said the tax package would provide $1.1 billion in relief over the next four years. Minority Democrats, who had preferred to spend the funds in areas like education and job training, disputed the figure noting that some of the tax measures had been approved in previous years.
The budget calls for a phasing in of the income tax cut over the next four years beginning with the fiscal year starting July 1. It now stands at 3.4 % and would fall to 3.23% in 2017. The tax relief package also repeals the state’s inheritance tax, reduces a tax on financial institutions, and maintains the ongoing phasing in of a corporate income tax cut. The budget provides a 2% increase in education funding the first year and then a 1% increase.
The budget provides an additional $215 million for transportation in each year and another $200 million will go into a reserve to fund future highway projects. The budget also funds the retirement of $70 million in Indiana State Museum debt and $58 million of debt issued for the Forensics and Health Sciences Lab. Public universities will receive $206 million for projects.
The budget leaves intact a $120 million ending balance and a $2 billion reserve.
A revenue forecast earlier this month set the stage for the agreement on a tax package and budget as projections showed the state likely to remain on course with a stable but slow recovery and revenues rising through 2015. Prior to the forecast, Republican lawmakers had supported more modest relief.
The latest forecast predicts lawmakers will have $290 million more through 2015 than originally projected in December 2012. Income taxes are driving the increase, while sales and gambling tax revenues are projected to fall.
Total general fund revenues are projected to rise $33.2 million above the most recent December forecast to $14.37 billion in fiscal 2013. Actual general fund revenues in 2012 totaled $14.12 billion. Revenues are expected to rise nearly $73 million in 2014 to $14.72 billion, and another $184.3 million in 2015, to $15.27 billion.
Forecasters trimmed expectations for sales tax revenue in 2013 and 2014. Corporate taxes are expected to remain relatively flat.
