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General Assembly

Deal reached; Pence tax cut sliced in half

To be phased in beginning in ’15

– Gov. Mike Pence procured half of his desired tax cut – over twice the time – in a budget deal unveiled Thursday and expected to be approved by House and Senate Republicans today.

Indiana’s individual income tax rate will drop 5 percent over four years. The first reduction will see the rate fall from 3.4 percent to 3.3 percent in 2015. Then it will decrease again to 3.23 percent in 2017.

The cut would save a person making $50,000 about $85 when fully implemented.

It’s rare for the legislature to defer a tax cut into another budget cycle, but Senate Appropriations Chairman Luke Kenley, R-Noblesville, said: “it’s a commitment on our part. It’s almost like a declaration of intent in some ways.”

In addition, the two-year, nearly $30 billion spending plan calls for a retroactive repeal of the state inheritance tax effective Jan. 1, 2013, and a reduction in the financial institutions tax.

A phase-down of the corporate tax also continues.

“We believe this blend is the right blend, at the right amounts, at the right time to be sustainable for the future,” GOP House Speaker Brian Bosma said.

Pence had sought a 10 percent tax cut over two years, but he still applauded the move.

“Today, Hoosier taxpayers won a great victory. The agreement reached between our administration and legislative leaders will be the largest state tax cut in Indiana history,” he said.

“The combination of a 5 percent 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.”

Senate President Pro Tem David Long, R-Fort Wayne, hailed it as “the single largest tax cut in the history of our state” – when it’s fully implemented.

“We believe these tax cuts are responsible and will have a positive impact on every Hoosier taxpayer and provide a meaningful boost for the Hoosier economy.

“I appreciate the hard work of the House and Senate fiscal leaders in putting this tax package together and thank the governor for his willingness to find common ground and embrace a winning tax cut package for all Hoosiers.”

The budget takes in more money each year than it spends by about $100 million. And it ends with reserves of about $2 billion.

Bosma said the bill also provides about $200 million more in annual transportation funding, including some to local government and some to the Indiana Department of Transportation.

Local governments do not have to adopt a wheel tax to receive new funding.

Kenley said the bill contains a two-prong transportation approach – ongoing needs and future needs.

The latter are addressed by a $400 million transportation savings account for INDOT.

Both sides trumpeted returning local education funding to pre-recession levels.

Schools on average will receive a 2 percent increase in funding through the tuition support formula in the first year and 1 percent – which is below inflation – in the second year.

In comparison, the budget for House expenses rises 2 percent in the second year and Senate expenses go up 13 percent.

Kenley said the budget also sets aside about $90 million to repay outstanding charter school advances.

He said it isn’t automatic though. The Indiana Office of Management and Budget will review the individual loans to “determine the appropriateness of reimbursing them.”

There has been some concern that the state is forgiving loans taken by schools that have since lost their charters.

There is also an additional $34 million to reward teacher performance.

The budget plans to pay off bonds for the Indiana State Museum and the Forensics and Health Sciences Lab, as well as pay $200 million in cash for new projects.

The deal also includes a provision authorizing Pence to negotiate with the federal government to receive Medicaid block grant funds.

A budget committee review would also be involved.

This provision comes instead of expanding Medicaid to cover up to 400,000 uninsured Hoosiers.

Other spending priorities include $35 million a year in new funding for the Department of Child Services; $25 million for skills enhancement; and $6 million on high school career, technical and vocational education.

The budget also contained some policy provisions, including a requirement for the Department of Child Services to investigate all reports of child abuse or neglect received from a judge.

It also requires DCS to forward all reports of child abuse or neglect received from medical personnel, school personnel, a social worker, law enforcement personnel, judiciary personnel, or prosecutor personnel to the appropriate local office.

The issue arose after criticism that complaints given to the centralized state child abuse hotline were being ignored.