— It’s not as large as Gov. Mike Pencehad wanted, but Indiana lawmakers are including a reduction in the state’s income tax in the new two-year, $30 billion budget that they are soon expected to approve.

The current 3.4 percent income tax rate would dip to 3.3 percent in 2015 and then to 3.23 percent in 2017 – a 5 percent cut phased in over the governor’s four-year term – under a budgetary framework unveiled by House Speaker Brian Bosma, R-Indianapolis.

It is part of a package of tax cuts that also includes repealing Indiana’s inheritance tax and lowering the state’s financial institutions tax, as well as continuing to phase in a cut in the corporate income tax rate that lawmakers approved two years ago.

The 5 percent income tax cut phased in over four years is short of the 10 percent reduction phased in over two years that Pence had made the centerpiece of his first-year legislative agenda, but he still called it a major win.

“Today Hoosier taxpayers won a great victory. The agreement reached between our administration and legislative leaders will be the largest state tax cut in Indiana history,” Pence said in a statement.

“The combination of a 5 percent individual income tax cut, inheritance tax repeal and additional tax relief for businesses is the right tax relief at the right time and will give a much needed boost to working families, small businesses and family farms.”

The size of the tax cut was the political question du jour because lawmakers have long said that they were close on the other two key budget items – education spending and state and local transportation funding.

Their budget agreement will boost K-12 education funding, which accounts for 55 percent of all state general fund spending, by 2 percent in its first year and another 1 percent in its second year. It also includes $30 million in year two for additional funding based on schools’ performance.

It increases the state’s funding for transportation by $215 million annually, and also sets aside tens of millions – the exact amount was not immediately available Thursday – for long-term highway projects.

Some of that money will go to local governments, and House negotiators persuaded their Senate colleagues to drop a proposal that would have required counties to adopt wheel taxes in order to get the new funding as they hashed out the final deal.

“Through hours of important discussions, we have reached a budget that reflects the goals that House Republicans set out to achieve this session,” Bosma said.

“Our budget meets our goals of prioritizing education and road funding while maintaining strong fiscal reserves. In addition we integrated a conservative concept for state budgets of paying cash for projects and reducing the state’s debt burden.”

Bosma said the budget deal also includes funding for university construction projects and would retire some of the state’s outstanding debts. The exact details were expected to become available when the budget is posted online late Thursday afternoon.

The budget is expected to receive final votes in the House and the Senate on Friday. It should easily clear both Republican-dominated chambers.

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