UPDATE: Future income tax cut added to road-funding plan

Hoping to entice Indiana Senate Republicans to support a road-funding plan that boosts gas and cigarette taxes, a House committee on Thursday added a proposal to cut the state's income tax rate by 5 percent over the next eight years.

The House Ways and Means Committee voted 14-7 to advance the plan to the full House. The proposal has the backing of House Republicans, but it's faced criticism from GOP Gov. Mike Pence and conservative groups for raising Indiana's cigarette tax by $1 a pack while tacking an estimated 4 cents onto the state's 18 cents-a-gallon gas tax.

Senate Republicans have been advancing a plan supported by Pence that would increase highway spending through steps that include drawing down the state's surplus and borrowing money.

To garner support among Senate Republicans, the House committee added the income tax cut—gradually reducing it in four steps from next year's rate of 3.23 percent to 3.06 percent in 2025.

House Speaker Brian Bosma said the House proposal would bring in more revenue for the state until the income tax cut was fully implemented after eight years. He continued to maintain the House plan was a better long-term solution for directing more money toward infrastructure needs.

"This is truly needed," Bosma said. "In fact, even those who are publicly opposing it have told me privately—some of them—that this is the right thing to do. They just don't want to do it in an election year."

Committee Democrats opposed the income tax change, saying it would make state government more reliant on sales tax revenue, which fluctuates more during economic downturns.

"We're really giving up a stable income for the state for something that's too fluid," said Rep. Terry Goodin, D-Austin.

Pence, who is facing a tough re-election campaign this year, has argued that tax increases aren't needed to boost road funding.

Senate President Pro Tem David Long said he didn't think the road-funding bill was the proper place for an income tax cut and wasn't sure that step was prudent for the state's finances.

"The income tax is a separate discussion as far as I'm concerned," he said. "I think that's put in there to try to get more support for the bill—and I understand that."

The conservative group Americans for Prosperity has been running radio advertisements critical of the House proposal and said Thursday's changes only represented a promise of future tax cuts.

“Today, the House Ways and Means Committee seemed to confirm what we have been saying all along: Indiana has the revenue we need to meet our infrastructure needs," Justin Stevens, Indiana state director of AFP, in a written statement. "We don't need tax increases to pay for roads and bridges; lawmakers need to do the hard work of budgeting and prioritize existing revenue for roads."

House Democratic leader Scott Pelath disparaged Republicans for only releasing the proposed income tax changes to the road-funding bill Wednesday night.

"I think your plan is very complicated and hard to defend, and the public is very uncertain about it," Pelath said.