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Where does Indiana state budget funding come from?

A sign on a wall that reads "State Budget Agency" along with the room number. The same message is also included on the sign in Braille.
Brandon Smith
IPB News
Nearly half of Indiana budget revenue comes from state taxes. Another 40 percent comes from federal funds.

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.

READ MORE: Indiana tax review task force begins work, with goal for some to eliminate income tax

Join the conversation and sign up for the Indiana Two-Way. Text "Indiana" to 73224. Your comments and questions in response to our weekly text help us find the answers you need on statewide issues.

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 or follow him on Twitter at @brandonjsmith5.

Brandon Smith has covered the Statehouse for Indiana Public Broadcasting for more than a decade, spanning three governors and a dozen legislative sessions. He's also the host of Indiana Week in Review, a weekly political and policy discussion program seen and heard across the state. He previously worked at KBIA in Columbia, Missouri and WSPY in Plano, Illinois. His first job in radio was in another state capitol - Jefferson City, Missouri - as a reporter for three stations around the Show-Me State.