The Indiana Legislature's budget leaders have drawn close to agreements on plans for phasing out the state's inheritance tax and changing the automatic taxpayer refund championed by Republican Gov. Mitch Daniels so that it could only be triggered every other year.

The inheritance tax proposal would more than double the current exemption levels and then completely phase out over 10 years the tax that now brings in about $165 million a year.

The House and Senate are both considering plans to slightly raise the amount of money the state would need to have leftover in the bank to result in a tax refund.

The plan approved last year by legislators set that level at 10 percent of the state's planned spending. Half of the money above that threshold would go to taxpayers and the other half would be used to pay down teacher pension obligations, which threaten to cost the state more than $1 billion annually in the future.

The Daniels administration is projecting a surplus when the state budget year ends June 30 that would lead to perhaps a $50 per taxpayer credit to 2013 tax returns.

State Budget Director Adam Horst said the Daniels administration wants to keep the refund plan unchanged for this budget year but is open to changes in future years.

Legislators must agree to final versions of the proposals by the end of next week, when House and Senate leaders expect to adjourn this year's session. Budget leaders, however, have agreed to delay any changes until after the first possible round of refunds is determined this summer.

The legislative proposals eliminate the possibility of a refund every year in favor of it triggering only at the end of the state's two-year budget cycle. The House-backed plan would raise the required surplus to 12 percent, while the Senate version raises it to 14 percent.

Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville, pointed out the $3 billion in budget adjustments Daniels made during the recession to balance the state budget would have amounted to a reserve of 22 percent.

The Senate proposal also would have $100 million in state reserves directed to pension fund obligations before any refunds are calculated, with the House plan would direct $200 million toward the refund before sending any additional money toward the pension fund.

"It's just hard for me to get over the idea that if you have a debt, you have to pay that before you declare a dividend for yourself," Kenley said.

Horst said the Daniels administration, however, believes enough money is already being dedicated to the future pension obligations.

Daniels advocated the refund plan, saying if the state's tax collections grow faster than expected it was better to give the money to taxpayers than have the state government spend it.

That plan has largely been embraced by the Republicans who control the House and Senate, but Democrats remain skeptical.

"I just don't think it's wise public policy," said Sen. John Broden, D-South Bend. "Even though the General Assembly is now involved in putting together some type of formula, I just think those issues should be addressed in the budgetary year."

The proposal for eliminating the inheritance tax starts by raising the exemption levels this summer.

The state now exempts inheritances of less than $100,000 to children and grandchildren and has a top rate of 10 percent for portions of estates topping $1.5 million. More distant family members and non-relatives face higher rates. Spouses pay no state inheritance taxes.

The new exemption level for close relatives would be $250,000, with a $25,000 exemption for others. The plan starts phasing out the tax on estates for those who die after July 1, with the tax being eliminated in 2022.

Estimates are that the state would lose about $60 million in revenue the first year and then an additional $10 million each year during the phase out. Horst said he believed the projected growth in state tax collections would cover the loss of the inheritance tax, which now accounts for about 1 percent of state revenue.