Hoosiers would see Indiana's flat individual income tax rate drop to 3.3 percent, from the current 3.4 percent, under a House-Senate compromise budget plan unveiled Thursday that's set for a final vote on Friday.
Under the plan, the income tax cut would take effect Jan. 1, 2015. The budget calls for the rate to drop again to 3.23 percent on Jan. 1, 2017, but lawmakers would revisit that decision during the 2015 legislative session.
The combined cuts are a 5 percent reduction in the state's income tax rate.
Republican Gov. Mike Pence had vigorously pressed lawmakers to fulfill his campaign promise and enact a 10 percent income reduction in the tax rate.
He nevertheless embraced the compromise tax cut proposal.
"The agreement reached between our administration and legislative leaders will be the largest state tax cut in Indiana history," Pence said.
The income tax cut is part of a package of tax reductions backed by the Republican-controlled Legislature that will return more than $1.1 billion to taxpayers over the next two years.
The other cuts include the immediate elimination of the state's inheritance tax, a previously approved 1 percent cut in the corporate income tax rate and a reduction in a special tax paid by banks.
House Speaker Brian Bosma, R-Indianapolis, said he can't recall another state budget that contains more than a billion dollars in tax cuts.
"I'm quite confident it's the largest implementation of tax cuts in Indiana at any time," Bosma said.
On the spending side, the plan calls for a 2 percent increase in school funding during the 2014 budget year, which starts July 1, 2013, and an additional 1 percent in 2015.
