Pence signs two-year state budget

The Indiana income tax cut that takes effect Jan. 1, 2017, was included in the state budget signed by Republican Gov. Mike Pence on May 8, 2013. Pence, center, was joined at the Crawfordsville, Indiana, signing ceremony by state Sen. Ed Charbonneau, R-Valparaiso, left, and state Rep. Tim Brown, R-Crawfordsville.

INDIANAPOLIS — Republican Gov. Mike Pence will deliver on the final installment of a partially fulfilled 2012 campaign promise when Indiana's personal income tax rate drops to 3.23 percent Jan. 1.

The slight decline from the current 3.3 percent rate means a Hoosier worker earning $50,000 a year will pay $35 less in income taxes to the state, adding about $1.35 to his or her biweekly paycheck.

Hoosiers last enjoyed an income tax cut Jan. 1, 2015, when the longstanding 3.4 percent rate fell to 3.3 percent, though Pence promised a far larger income tax reduction while campaigning for governor four years ago.

He said then that reducing the rate to 3.06 percent by 2015 was needed to give a "direct jolt to the Indiana economy."

However, Pence was unable to persuade the Republican-controlled General Assembly in 2013 to go along with his proposed 10 percent cut to the personal income tax rate.

He settled instead for a 5 percent cut over a four-year period, along with eliminating the inheritance tax for the state's richest residents and a 1 percent reduction in the corporate income tax rate.

The Pence-dubbed "largest tax cut in state history" reduced Indiana's revenue by a total of $1.1 billion, according to the nonpartisan Legislative Services Agency.

The governor also said the final tax cut package was a victory for ordinary Hoosiers — even though in some cases it got eaten by increases in county income taxes, such as the 1.5 percent Lake County income tax first imposed in October 2013.

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"I think Hoosiers got a great bargain with the tax relief that's included in this budget," Pence said that year. "It's a prescription for jobs and economic growth."

In 2014, the General Assembly substituted a corporate income tax cut for Pence's proposal to eliminate the business personal property tax that provides more than $1 billion annually to schools and local governments.

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As a result, the corporate income tax rate of 8 percent when Pence took office, will fall to 4.9 percent in 2021, reducing state revenue by an LSA-estimated $132 million a year when fully implemented.

Pence took credit for that tax cut, even though it was not the proposal he asked legislators to approve.

"Job creation is job one in Indiana, and the legislation signed today will strengthen our competitive edge to attract new businesses and good-paying jobs to our state," Pence said on signing the measure into law.

Pence's single term as governor ends Jan. 9. He will take office as vice president of the United States on Jan. 20.

Meanwhile, the 2017 General Assembly is set to debate whether to increase the state's gasoline tax, toll highways and Interstates, as well as boost other vehicle fees to raise a projected $1 billion in new money needed each year for the next 20 years to effectively maintain and improve Indiana's roads and bridges.

The last major Indiana tax increase came in 2008, under Republican Gov. Mitch Daniels, when the sales tax rate was raised to 7 percent, from 6 percent, as part of a package that also capped property tax rates throughout the state.