INDIANAPOLIS | Gov. Mike Pence lauded the Senate Appropriations Committee on Thursday for adding an income tax cut to the pending 2014-15 state budget, even though the reduction is less than one-third the size Pence wanted.
"I believe that we are getting on the same page, but let me be clear there are still details and differences about levels of spending and priorities," Pence said. "I think this latest version of the budget is a good start."
The revised budget, which now goes to the full Senate, reduces the personal income tax rate in 2015 to 3.3 percent from 3.4 percent, a change that would cost the state $150 million in annual revenue. If enacted, a Hoosier earning $50,000 a year will pay $50 less in taxes.
Pence wants lawmakers to cut the income tax rate to 3.06 percent, which would return about $500 million a year to taxpayers. Pence allies severely criticized the Republican-controlled House after it approved a budget, House Bill 1001, that does not reduce the income tax rate.
State Sen. Luke Kenley, R-Noblesville, the Appropriations Committee chairman, said he agrees with the Republican governor that $500 million is probably a sustainable reduction in state revenue. However, Kenley believes putting that all in an income tax cut is not the best way to stimulate Indiana's economy and create jobs.
Instead, the Senate budget immediately terminates Indiana's inheritance tax, which is currently slated to be phased out by 2022. It also continues reducing the corporate income tax rate toward 6.5 percent and similarly cuts a tax rate that applies to banks.
Senate President David Long, R-Fort Wayne, said mixing tax cuts for individuals and businesses is most likely to produce the biggest bang for the state's bucks.
"I like the balance of it, so do my colleagues," Long said. "Hopefully this overall approach on tax cuts is the right one."
In terms of spending, the Senate budget nearly mirrors the House-approved plan for elementary and high school education. It adds $331 million, or 3 percent, to current school budgets, while the House wants $344 million.
Pence recommended increasing education spending by $137 million, with half of that money going only to the state's best schools.
On transportation, the Senate plan provides a $112 million annual increase for state road and bridge construction and $101 million in new funds for local roads.
However, counties would be required to impose a wheel tax on vehicle owners to gain access to the local road funds. Lake and Porter counties currently do not assess a wheel tax.
"We're being told by the locals that they desperately need new revenue for their roads, but there is a method for helping yourself there and that's the wheel tax," Long said. "We think as the state invests so should locals, and that's the way to do it."
State Sen. Karen Tallian, D-Ogden Dunes, the top Democrat on the Appropriations Committee, said she opposes conditioning local road funds on adoption of a wheel tax and will try to remove that provision from the legislation.
The chairman of the House Ways and Means Committee, state Rep. Tim Brown, R-Crawfordsville, also said he's not particularly interested in a wheel tax mandate.
Overall, the Senate budget is balanced with expected revenues exceeding proposed spending by $125.7 million in 2014 and $126.1 million in 2015.
It sets aside $200 million a year in a Major Moves 2020 fund for future road projects and puts money currently used for the Healthy Indiana Plan into a savings account to cover unexpected state costs connected to the federal Affordable Care Act.
"This is about as good a budget as I've seen in my 17 years," Long said. "It's in great shape, it keeps the surplus, it invests properly in Indiana's future and for our kids and it gives tax cuts for all taxpayers."
The full Senate will consider proposed amendments to the budget Monday and is expected to approve it Tuesday or Wednesday.
Lawmakers from the Senate and the House will then meet in a conference committee to devise a compromise budget that must be approved again by both chambers before it goes to the governor.