(INDIANAPOLIS) - Indiana lawmakers are weighing major fiscal decisions as they consider whether to align the state tax code with broad federal tax cuts enacted last year under President Donald Trump.
According to an analysis reported by the Indiana Capital Chronicle, Governor Mike Braun's administration estimates the state could provide more than $900 million in tax breaks over the next two years if lawmakers adopt all of the federal changes included in what Republicans called the "One Big Beautiful Bill."
Republican legislators are expected to take up tax conformity proposals when the legislative session resumes January 5. The federal law includes temporary deductions for tips, overtime pay, and interest on loans for vehicles built in the United States, along with expanded tax breaks for businesses and certain production facilities.
Braun's budget director, Chad Ranney, said lawmakers are not required to adopt every federal provision and can choose which changes to implement based on fiscal and policy considerations.
Indiana last updated its tax conformity in 2023. State estimates show overtime deductions alone could save taxpayers nearly $275 million over two years, while deductions for tips and vehicle loan interest could total about $150 million. Business-related tax breaks could account for nearly $380 million.
Those potential savings would also reduce state revenue. The debate comes as Indiana's fiscal outlook has improved, with projections showing state reserves could approach $5 billion by mid-2027.
Policy analysts have also warned that fully adopting the federal changes could further shrink Indiana's tax base and increase reliance on the state's 7% sales tax.
Lawmakers could move quickly on a conformity bill early in the session to avoid confusion for taxpayers filing 2025 returns. State revenue officials say guidance would be issued once any changes are finalized.