INDIANAPOLIS — Hoosiers could get an income tax cut as part of the House Republican plan to pay for $500 million in annual road improvements through higher taxes on cigarettes and gasoline.
The House Ways and Means Committee revised House Bill 1001 Thursday to include a gradual reduction in the state's personal income tax rate from 3.23 percent in 2017 to 3.06 percent by 2025.
When fully phased in, a Hoosier earning $50,000 a year would see his or her annual state income tax payment drop $85. That's $1.63 per week.
House Speaker Brian Bosma, R-Indianapolis, said cutting some taxes while raising others may be what's needed to advance the House roads plan through the tax-adverse Senate and win the approval of Republican Gov. Mike Pence.
The House is expected to vote on the measure next week.
"It will end up all being part of the final discussion, hopefully, at the end of session," Bosma said. "We're trying to do what's right and responsible for Hoosiers that drive our roads."
The sponsor of the plan, state Rep. Ed Soliday, R-Valparaiso, said if the income tax cut goes through, Indiana in 2025 will have the lowest income tax rate among states that levy an income tax.
Though Soliday also hinted the income tax cut is more of a bargaining tactic than a genuine effort to further reduce the state's 3.3 percent income tax rate, which already is set to fall to 3.23 percent next year. It was 3.4 percent in 2013.
"There are those folks who have said they don't like a tax increase, well this balances things," Soliday said. "We're getting ready for the Senate side, the bill is complex and with this many opinions you want a lot of chips when you're going into negotiations."
The legislation increases the cigarette tax by $1 per pack and dedicates that revenue to state health care costs attributed to smoking-related illness, freeing up funds for road construction that currently are spent on health.
It also restores the buying power of the state's gasoline tax to 2002 levels by adding approximately four cents per gallon and automatically adjusting the future gas tax rate for inflation.
Bosma said the revised legislation is revenue-neutral since the income tax cut balances the targeted tax increases over time, and inflationary growth in total state tax collections will prevent a decline in overall revenue.
Statehouse Democrats are advocating that Indiana instead spend some of its $2.1 billion budget reserve fund on roads before asking Hoosiers to pay more.