INDIANAPOLIS | Gov. Mike Pence showed no signs of disappointment Monday despite having failed to persuade the now-adjourned General Assembly to adopt his oft-touted plan cutting the state's income tax rate by 10 percent.
Instead, he wholeheartedly embraced the $1.1 billion substitute tax cut package approved early Saturday by the Republican-controlled Legislature, calling it "the right tax cut at the right time."
"I am grateful for the largest state tax cut in Indiana's history," Pence said. "I think it's a prescription for jobs and economic growth."
Under the plan, the income tax rate will drop to 3.3 percent on Jan. 1, 2015, from 3.4 percent. It's scheduled to be reduced to 3.23 percent in 2017 -- a 5 percent overall cut. The combined tax reductions will return approximately $300 million to Hoosiers.
The measure immediately eliminates Indiana's inheritance tax, retroactive to the first day of the year, costing the state $150 million in annual revenue.
In addition, the corporate income tax rate will decline to 7 percent from 8 percent over the next two years, returning $200 million a year to businesses, though that rate cut was approved by former Gov. Mitch Daniels.
Indiana banks will get a new tax cut worth $150 million over the next decade.
The first-year Republican governor said he fought for his 10 percent cut until the next-to-last day of session when he finally conceded to legislative leaders, none of whom ever backed his full tax cut.
"I think all parties concerned drove a hard bargain, but I think Hoosiers got a great bargain with the tax relief that's included in this budget," Pence said. "At the end of the day, I think the tax relief that we crafted together is better than what I was proposing."
Pence remained certain of the job-creating impact of a $300 million income tax cut phased in over four years, even though since December Indiana's unemployment rate has risen 0.4 percent while the state has paid out a $360 million automatic taxpayer refund.
He said the permanency of the personal income tax cut, which most small businesses pay, will attract companies to Indiana and inspire Hoosier companies to add to their workforces.
"What this allows businesses to do is literally recalculate their income tax liability in the long-term," Pence said. "I do think that creates a climate that will encourage more investment and growth."
House Speaker Brian Bosma, R-Indianapolis, said he believes Indiana's tax cut package is sustainable over the long-term, unlike other states where Republican legislatures are raising taxes to make up for deficits caused by too-deep tax cuts in one revenue category.
"Indiana is really going to stick out as a state that not only has met its priorities but has been able to cut a broad spectrum of taxes," Bosma said.
State Rep. Greg Porter, D-Indianapolis, the House Democratic budget leader, said Pence and Bosma are overselling the tax cuts, especially the income tax cut, which most people won't even notice.
"What will that cut mean for the average Hoosier, who makes about $50,000 a year? In two years, it will mean about a buck a week. Two years after that, another buck a week in savings," Porter said. "And that, for all the talk about these cuts, is what most Hoosiers are going to see from this legislative windfall."