Budget discussions are ongoing at the Indiana Statehouse, as summarized by Senate President Pro Tempore Rodric Bray and House Speaker Todd Huston following the State of the State Address on Wednesday, Jan. 29, 2025. Photo by Leslie Bonilla Muñiz, Indiana Capital Chronicle.

By Whitney Downard and Niki Kelly
Indiana Capital Chronicle

INDIANAPOLIS — Despite being a top priority for new Indiana Gov. Mike Braun, Republican leaders in the General Assembly seem to be taking a more cautious approach to new state tax relief in budget discussions.

“I really appreciate the governor kind of leaning in and and, you know, he wants to do more with less. He wants to make sure Hoosiers keep more of their money,” said House Speaker Todd Huston.

But he pointed to an existing income tax phase-down already in law as a priority and noted some agencies — such as the Department of Child Services — that will need additional funding. The state’s income tax will continue to fall over the next two years, hitting a low of 2.9% in 2027.

Another bill would extend the gradually falling rate so long as the state’s economic conditions hold steady.

“We’re going to be cautious. I mean really, really cautious … there’s a lot of uncertainties right now,” said Huston, R-Fishers. “It’s challenging and probably a little less frills, more vanilla.”

In contrast to the flush budgets during COVID-19, when federal funds and high spending buoyed state revenues, the next two-year cycle will be much leaner — with discussions centered around warring priorities. With less than one month as the state’s top leader, Braun has vowed to usher in a new era of austerity, curbing agency spending while simultaneously granting widespread tax relief.

In addition to a property tax proposal that could save Hoosiers more than $1 billion collectively, his budget includes several income tax relief proposals:

• Inflation-adjusted income tax deductions
• Eliminating the tax on retirement income
• Stopping the tax on tips
• A farming tax credit
• Instituting sales tax holidays for school supplies and outdoor equipment.

The cuts would reduce state tax revenue by $696 million over the two years of the budget. To pay for that, Braun reduced various categories of state agency spending.

Senate President Pro Tem Rodric Rodric Bray called Braun’s budget “aspirational,” and said he appreciated the leadership.

“There are challenges. DCS continues to be a challenge,” said the Martinsville Republican.

Bray said the DCS budget had to be augmented to finish out this fiscal year and that might have to continue in the next two years.

“And so those types of things are going to make it hard to accommodate those tax cuts. We’d love to be able to do it, but there are some challenges with that,” he said.

Huston, who has played a role in crafting four previous budgets, said this budget was the “most challenging.” While the first year has some moderate revenue growth, the second budget year has almost no additional dollars coming into state coffers — even as Medicaid and other expenses continue to grow.

Additionally, the new Trump administration in Washington D.C. is adding uncertainty, as large portions of the state’s budget depends on dollars flowing from federal coffers. Changes to Medicaid or education funding, for example, would have a large impact on how the state delivers on its promised services.