LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington St., Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 6551 NOTE PREPARED: Dec 26, 2023
BILL NUMBER: HB 1411 BILL AMENDED:
SUBJECT: Elimination of State Individual Income Tax.
FIRST AUTHOR: Rep. Payne BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED:XGENERAL IMPACT: State & Local
DEDICATED
FEDERAL
Summary of Legislation: The bill eliminates the state Individual Adjusted Gross Income Tax by reducing
the rate to 0%. It provides that in calculating the Local Income Tax (LIT), which is imposed based on a local
taxpayer's state adjusted gross income, the calculation of a taxpayer's state adjusted gross income for LIT
purposes shall be calculated under the Adjusted Gross Income Tax provisions as if those provisions, and the
most recent Adjusted Gross Income Tax rate before its elimination, were still in effect.
Effective Date: July 1, 2024.
Explanation of State Expenditures: Department of State Revenue (DOR): The DOR will incur additional
expenses to revise tax forms, instructions, and software. The DOR’s current level of resources should be
sufficient to implement the tax provisions outlined in the bill. With the elimination of the state Adjusted
Gross Income Taxes, the bill will reduce the agency workload in the long term. [DOR will still process
Individual Adjustment Gross Income Tax returns for the purposes of local income tax.]
Explanation of State Revenues: Individual Income Tax Rate: Starting tax year 2025, the bill eliminates the
Individual Income Tax. This will result in revenue loss to the state General Fund. The revenue loss is
estimated to begin in FY 2025 and is outlined in the following table.
HB 1411 1 Fiscal Year
State General Fund
Impact (In Millions)
Percent Reduction in
Income Tax Revenues
2025 ($3,962.6) -47.8%
2026 ($8,466.0) -100.0%
2027 ($8,640.2) -100.0%
2028 ($8,886.8) -100.0%
Under current law, the Individual Income Tax rate is 3.05% in tax year 2024. Current law further phases
down the tax rate until it is 2.9% in 2027 and years thereafter. The bill eliminates the Individual Adjusted
Gross Income Tax for tax year 2025 and years thereafter.
Tax Year Current RateProposed Rate
Percentage Point
Change from Current
Rate
Percent Change from
Current Rate
2024 3.05% 3.05% -0.00% -0.0%
2025 3.00% 0.00% -3.00% -100.0%
2026 2.95% 0.00% -2.95% -100.0%
2027 2.90% 0.00% -2.90% -100.0%
2028 2.90% 0.00% -2.90% -100.0%
Additional Information - Since the fiscal year begins on July 1, any change in the tax rate beginning January
1 will lead to the fiscal year having two different tax rates. The average of the two different tax rates
occurring in FY 2025 to FY 2028 was calculated and used to estimate the revenue loss in those years. FY
2028 would be the first year of the full impact of the tax rate cut to 0%. The Revenue Forecast Technical
Committee (December 19, 2023) forecasted Individual Income Tax revenue of $8,283.6 M in FY 2025.
Income tax revenues for FY 2026 to FY 2028 were estimated using FY 2025 as the base year and applying
the historical compound annual growth rate. Results from empirical literature on taxable income elasticity
along with the proposed decrement in tax rate were used to calculate the impact of the rate change on taxable
income for each fiscal year. The fiscal impact will continue to grow in future years. Individual Income Tax
is deposited in the state General Fund.
Explanation of Local Expenditures:
Explanation of Local Revenues: Local Income Taxes: Results from empirical literature on elasticity show
that a decrease in the Individual Income Tax rate would result in an increase in overall statewide taxable
income. This would result in an increase in LIT revenues starting in CY 2025. Since the certification process
for LIT revenues result in a lag of actual distributions of the revenues, the actual fiscal impact on LIT
distributions will not occur until CY 2027. LIT revenues are estimated to increase between $300 M to $350
M annually.
State Agencies Affected: Department of State Revenue.
Local Agencies Affected: Local units.
Information Sources: Revenue Forecast Technical Committee, December 2023 Revenue Forecast,
HB 1411 2 https://www.in.gov/sba/budget-information/revenue-data/2023-2025-revenue-forecast-and-updates/; Long,
James E. “The Impact of Marginal Tax Rates on Taxable Income: Evidence from State Income Tax
Differentials.” Southern Economic Journal 65(4): 855. Bruce, Donald, John Deskins, and William Fox.
(2005) On the Extent, Growth, and Efficiency Consequences of State Business Tax Planning." Donald Bruce,
John Deskins, and William Fox. (2006). "On The Relative Distortions of State Sales, Corporate Income and
Personal Income Taxes." Gruber, Jonthan, and Joshua Rauh. (2005) "How Elastic is the Corporate Income
Tax Base. Bruce, Donald, John Deskins, and William Fox.
Fiscal Analyst: Randhir Jha, 317-232-9556.
HB 1411 3