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Where does Indiana state budget funding come from?

By Brandon Smith

Posted October 12, 2023

Nearly half of Indiana budget revenue comes from state taxes. Another 40 percent comes from federal funds. (Brandon Smith / IPB News)

Indiana’s current two-year state budget includes more than $44 billion in spending. But where does all that money come from? That’s a question our audience wanted to know.

By far the biggest source of state budget funding is state taxes. And Indiana Fiscal Policy Institute President Stephanie Wells said Indiana’s tax system is fairly simple.

“There’s a lot of smaller taxes that we don’t collect here in Indiana — like severance taxes, inheritance taxes and some other things," Wells said.

The state’s three major taxes — sales, individual income and corporate — are projected to make up more than 80 percent of Indiana’s tax revenue in the new budget. And state tax revenue accounts for nearly half of all budget funding.

Permits, licenses and other small revenue sources contribute some, as well. But Wells said the second biggest piece of the funding pie is federal money.

“Our federal taxes go to the federal government and then those funds are often formula-allocated back to the state,” Wells said. “And the state budget leaders, through their budgeting process every two years, will allocate those federal funds to the different state agencies, who will then administer the funds.”

Federal funds make up more than 40 percent of Indiana’s current budget revenue.

This story is a part of “Civically, Indiana” – a project to answer both the how and why of Indiana’s state government. To take part in the conversation or find stories like this, join our text group The Indiana Two-Way by texting the word "Indiana" to 73224.

Brandon is our Statehouse bureau chief. Contact him at bsmith@ipbs.org or follow him on Twitter at @brandonjsmith5.