Size of Indiana income tax cut remains undecided

Indiana's new state budget will include at least a small personal income tax cut, although legislative leaders said Wednesday they weren't certain whether it will be as large as Republican Gov. Mike Pence wants.

Negotiations were continuing between House and Senate leaders on the new two-year state budget and other issues, including a proposed expansion of the state's private school voucher program, ahead of Friday's planned adjournment of this year's legislative session.

Republican House Speaker Brian Bosma said negotiations were continuing with the Senate and the governor's office on the size of the cut.

Pence has sought a 10-percent cut in the individual income tax rate, which would reduce that rate from 3.4 percent to 3.06 percent and cost about $500 million a year. The House didn't include an income tax cut when it approved a budget plan in February, while the Senate this month backed a 3-percent cut.

Bosma said the budget deal would include an income tax cut, but the size was "still under discussion."

Pence said last week he would consider supporting phasing in his proposed income tax cut over a few years but that he didn't want to budge on its size.

Senate Majority Leader Brandt Hershman, R-Lafayette, said a decision had not been made on whether legislators would move closer to Pence's proposal.

"I don't think anything is off the table yet," Hershman said.

Bosma said he expected the new budget would have $500 million a year in tax cuts. That includes about $150 million from speeding up the phase-out of the state inheritance tax approved last year and $200 million from a corporate income tax reduction approved in 2011.

The spending plan will likely give 2-percent and 1-percent increases for school funding over the next two years, for about a $330 million hike.

Rep. Greg Porter, the top Democrat on the House Ways and Means Committee, said the Republicans have misplaced priorities and should do more to make up for spending cuts made by former Gov. Mitch Daniels during the recession.

"We should restore the dollars that we've taken away over the last two to four years," said Porter, D-Indianapolis. "We should restore $300 million back to public education, restore the $100 million back to the Department of Child Services that we've taken away."

House and Senate education leaders said they were also close Wednesday to agreeing on expanding the state's private school voucher program by making children who would attend poorly performing schools immediately eligible.

The current voucher law requires all students to spend at least one year in public schools before becoming eligible if their families meet income limits.

Senate Education Committee Chairman Dennis Kruse, R-Auburn, said the compromise would make students whose public school received a state performance grade of F immediately eligible.

Nearly 150 schools across the state received an F in scores released in November, but it's unclear how many students could become eligible and how much more that could cost the state.

The House-approved bill would have eliminated the one-year public school rule for children entering kindergarten anywhere in the state, after which they could remain a voucher student in private schools.

The voucher program was first approved in 2011. The state is spending about $37 million for vouchers to some 9,100 students this school year.

"I think it is better to have incremental growth rather than explosive growth," Kruse said. "I think it's wiser for us to take small steps and see how each step affects the system overall."