The phrase “opening the budget” always floats around during short sessions of the Indiana General Assembly. This year is no different — with Republican supermajorities adamant about keeping it closed.
What is opening the budget, and why should Hoosiers care?
Lawmakers pass a state budget that lasts two years at a time. That means in odd-numbered years, they debate all the priorities for state spending and pass a biennial plan full of appropriations for both years.
When the even-numbered years come along, leaders generally don’t want to add any spending to that plan.
But what about taking revenue away? Republicans seem okay with that, if it means giving a tax break to citizens.
In real life, Hoosiers open their budgets constantly. That’s because things happen, big and small: your car breaks down and you have to get it fixed, or you want access to a new streaming service. The first is a one-time cost that can come out of savings. The second is an ongoing cost that comes out of your incoming revenue.
One bill moving through the Legislature would adopt federal tax changes for overtime and tips, saving Hoosiers about $250 million a year in individual income taxes. That also means it will lower Indiana’s revenue supporting state services.
Sen. Travis Holdman, R-Markle, inserted the language in Senate Bill 243 but said it would apply only to 2026 wages on tax returns filed in 2027. And he said the money will come out of the state’s reserves, which are projected to rise to nearly $5 billion by mid-2027.
“These state income tax cuts are a concrete way we can help hardworking Hoosiers keep more of their hard-earned money,” Senate President Pro Tem Rod Bray (R-Martinsville) said last month.
But when Democrats suggest investing in child care vouchers or reversing cuts in the state budget, Republicans are adamant that would be opening the budget, because those would be new appropriations.
The Senate GOP also turned down a change to the sales tax on utility services, which could have saved Hoosiers $750 million through a four-year phaseout. Democrats pointed to a tax break given to data centers that move into Indiana.
It remains to be seen how the House will receive the proposed tax cut. The chamber’s Ways and Means committee heard testimony on the bill Feb. 4, but hasn’t yet discussed amendments or taken a vote.
“Agreeing to this conformity would be authorizing a new tax expenditure with newly allocated money that exists outside of our enacted budget,” said Olivia Smith, with the Indiana Community Action Poverty Institute.
“Consistent with the General Assembly’s long-held standard of not opening the budget in non-budget years, we respectfully request that the committee does not advance the language.”
House Speaker Todd Huston (R-Fishers) said last month that he is sympathetic to the cut: “I certainly understand the argument … that those are again dealing with the affordability issue, helping folks that oftentimes are our hardest-working Hoosiers.”
To me, this is all splitting hairs. Both a tax cut and an appropriation reduce the state’s bottom line. If one is okay in this short session, why is the other not?
Holdman said the overtime and tips changes are only for one year. But I don’t believe that Republicans would take a tax break away after one year, which means this is really a permanent change.