New revenue forecast for Indiana improves chances for Gov. Mike Pence's tax cuts

State will take in $257M more than expected

INDIANAPOLIS - After forecasters upgraded Indiana's economic outlook, Gov. Mike Pence now looks poised to get part of the individual income tax cut he wants, and the question now is how close lawmakers will get to his goal.

The state will take in $257 million more in taxes over the next two-year budget period than forecasters had expected in December, and another $33 million before the current fiscal year ends in June, they said Tuesday.

Their projection means Indiana can work that money into its next two-year budget – a two-year, $30 billion document that lawmakers are working to finalize before this year's legislative session wraps up at the end of next week. 

Pence is lobbying for that budget to include a reduction in Indiana's individual income tax rate from the current 3.4 percent to 3.06 percent. That move would save average taxpayers around $100 annually and would reduce Indiana's tax collections by $520 million per year – and $780 million over the biennium, since it would be phased in over two years.

The new forecast "should be welcome news to every Hoosier struggling in these difficult times and to policy makers working to craft a balanced budget," Pence said in a statement.

"With greater economic growth and resources for our state, I am more confident than ever that we can craft a balanced budget that funds our priorities like roads and schools and provides Hoosiers with the kind of tax relief they need and deserve."

Indiana legislative leaders in both the House, which initially declined to insert Pence's proposed income tax cut into its budget, and the Senate, which lowered the income tax rate to 3.3 percent – about 30 percent of the cut Pence wanted – said they now expect the next budget to include a total of about $500 million in tax cuts.

The first $200 million of that is likely to come from corporate income tax cuts that lawmakers approved two years ago and that are already being phased in. Another $19 million is likely to come from reducing the state's financial institutions tax.

That leaves around $300 million that lawmakers can divide between reducing the income tax, which Pence favors, and eliminating the state's inheritance tax – one that's currently being phased out over nine years – as legislative leaders have said they might prefer.

Administration officials said the new numbers mean lawmakers could approve the budget that Pence proposed, with the additional enhancements for education and transportation that House and Senate leaders favor, and still top the state's surplus targets by $100 million.

That, though, doesn't account for lawmakers' suggestions to eliminate Indiana's inheritance tax, which would save taxpayers and reduce state revenue by $150 million per year, and to spend more on debt payments and university projects.

"I think we heard that going forward, there's a positive outlook, but everybody's still crawling out of the recession," said budget-writing House Ways and Means Committee Chairman Tim Brown, R-Crawfordsville.

"Hoosiers will get tax relief in this budget, and right now the framework is for half a billion dollars in tax relief."

The Senate's top budget-writer, Appropriations Committee Chairman Luke Kenley, R-Noblesville, agreed that $500 million in total tax cuts are likely.

"You can always trade tax cuts back and forth," Kenley said, adding the issue is "how you divvy that up."

He said he remains cautious about reducing the state's income tax because Indiana just weathered a recession and depends heavily on the revenue stream that tax creates to fund its schools, Medicaid program and highway budget.

"Once you go through that and you do budgets … you're in a position where you're a little more cautious when you handle these things," he said.

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