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Surplus means $111 credit for state taxpayers

– Indiana taxpayers will receive a $111 credit on their state income tax returns next year as the state distributes part of its budget surplus under a refund plan that Gov. Mitch Daniels pushed through the state legislature.

Daniels announced Wednesday that the credit will be $222 for couples filing joint returns after the state wrapped up its budget year in June with reserves reaching about $2.1 billion.

About $360 million will go toward the tax credits, with another $360 million to the state’s pension liabilities for teachers and many state employees, according to the governor’s office.

The tax credit will come off of what Hoosiers owe on their 2012 state tax returns, which the governor’s office said typically averages about $850 for each taxpayer.

Daniels said some 335,000 people are expected to receive state tax refunds next year than would have without the plan to return the state surplus.

“We thought a tax refund would be more meaningful for low-income to moderate-income people,” Daniels said.

Critics argue that Daniels created the reserves – amounting to about 15 percent of the state’s budget – by cutting millions of dollars in funding for public schools, the child welfare agency and other important services.

House Minority Leader Scott Pelath, D-Michigan City, said the money going to what he called a modest tax refund could better be spent investing in better roads, infrastructure and health care around the state.

“While a saccharin tax refund is nice, it’s not what’s going to move Indiana forward,” Pelath said.

The state’s cash reserves accrued because of three major factors: improved tax collections by the state as it continues to crawl out of the recession, a series of cuts to state agencies made over the last few years, and a tax error resulting in the state’s discovering $320 million in a tax collection account.

The tax credit kicked in because the state’s reserves topped 10 percent of its planned spending for the year. But state lawmakers earlier this year increased that trigger to 12.5 percent of state spending for future refunds.

“Better that these dollars remain in the pocket of the people who earned them than burn a hole in the pocket of government,” Daniels said.

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