LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
FISCAL IMPACT STATEMENT
LS 6727 NOTE PREPARED: Jan 22, 2025
BILL NUMBER: SB 451 BILL AMENDED: Jan 21, 2025
SUBJECT: Income Tax Rate.
FIRST AUTHOR: Sen. Holdman BILL STATUS: CR Adopted - 1
st
House
FIRST SPONSOR:
FUNDS AFFECTED:XGENERAL IMPACT: State
DEDICATED
FEDERAL
Summary of Legislation: (Amended) The bill provides for a decrease in the Individual Adjusted Gross
Income Tax rate beginning in 2030 depending on certain conditions being met.
Effective Date: July 1, 2025.
Explanation of State Expenditures: State Budget Agency (SBA): The bill requires the SBA to calculate the
revenue growth for purpose of Individual Income Tax rate cut. The provision will have a minimal impact on
the SBA’s workload.
Department of State Revenue (DOR): The DOR will incur additional expenses to publish the tax rate related
information, revise tax forms, instructions, computer programs, and withholding tables to reflect the tax rate
related changes made by the bill. The DOR's current level of resources should be sufficient to implement
these changes.
Explanation of State Revenues: (Revised) Individual Income Tax Rate: The bill could result in a revenue
loss to the state General Fund starting in FY 2030. The bill provides guidelines to the SBA to conduct a
calculation at the end of each even numbered fiscal year starting in FY 2028. The calculation will determine
the percentage of revenue growth in the actual amount of forecasted state General Fund revenues. It provides
for a reduction of the state Individual Income Tax rate if the revenue collections for the fiscal year are at least
3% above the revenue collections for the prior fiscal year. The rate will be reduced in the following even
numbered year in which the calculation made by the SBA results in the thresholds being met.
Under current law, Indiana imposes a flat income tax rate being phased down from 3.05% in 2024 to 3.0%
in 2025, 2.95% in 2026, and 2.9% in 2027 and years thereafter. Under the bill, assuming that the thresholds
are met at the end of FY 2028 and FY 2030, the tax rate would be phased down from 2.9% to 2.85% for tax
year 2030 and 2031 and 2.8% for tax year 2032 and 2033. The revenue loss from the rate reduction is
estimated to begin in FY 2030 and is outlined in the following table. The estimates shown assume that the
thresholds for rate reduction set in the bill will be met, and the rates will be reduced by 0.05% (percentage
point) starting the next even numbered year.
SB 451 1 State Revenue Impact from Income Tax Cut
Assumes That the Rate Cut Thresholds Are Met
Fiscal Year
State General Fund
Impact (In Millions)
Percent Reduction in
Income Tax Revenues
2030 ($76) -0.8%
2031 ($158) -1.6%
2032 ($246) -2.4%
2033 and thereafter Continued Revenue Impact
(Revised) 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 during the fiscal year was calculated and used to estimate the revenue loss in those years. FY 2030
could be the first year of the impact of the tax rate cut. The Revenue Forecast Technical Committee
(December 17, 2024) forecasted Individual Income Tax revenue of $8,540.9 M for FY 2027. Income tax
revenues for FY 2028 to FY 2032 were estimated using FY 2027 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 analysis also assumes that Individual Income Tax filers will change their quarterly
estimated payments and income tax withholding payments based on the reduced tax rates. The fiscal impact
will continue to grow in future years. Tax rate decreases in future years will continue to depend on the
outcome of calculations conducted by the SBA at the end of each even numbered fiscal year. Individual
Income Tax is deposited in the state General Fund.
Explanation of Local Expenditures:
Explanation of Local Revenues:
State Agencies Affected: State Budget Agency; Department of State Revenue.
Local Agencies Affected:
Information Sources: State Revenue Forecast, December 17, 2024; OFMA Income Tax Database;
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; Legislative Services
Agency, Indiana Handbook of Taxes, Revenues, and Apropriations, Fiscal Year 2023,
https://iga.in.gov/legislative/2022/publications/handbooks/
Fiscal Analyst: Randhir Jha, 317-232-9556.
SB 451 2