EYE ON THE PIE: Taxing and spending centralized in Indiana

The ongoing trend in state–local government relations in Indiana is increasing paternalism.

The state government, in the form of the legislature and the governor, know what is best for our counties, cities and towns. They decide how we should live in our localities. They limit the variations in services and regulations that we have in our state. What is right for Jay and Porter counties is necessarily appropriate for Jackson and Posey counties.

If you believe in the greater wisdom of the central authority, as do liberals and conservatives alike, you will applaud the recent decision of the General Assembly to deny the people of Marion and Hamilton counties the right to vote on an augmented public transit system. (The fact that the bill in support of the local referendum failed due to political squabbling is only another example of the legislators' inability to decide issues on their merits.)

A statewide ban on smoking in public places is another example of using the state government to resolve what could easily be seen as a local issue. Less and less authority over local schools rests with elected school boards. One legislator even wanted to regulate the singing of the national anthem. The short session of the legislature invites trivial pursuits that have no explicit budgetary implications for the state government.

When our new governor and new legislature meet in 2013, they will once again have the pleasure of considering and reorganizing our revenue and expenditure flows. They will find that the biggest chunk (43 percent) of revenue received by the state comes from the sales tax. (Data are for fiscal year 2011 – July 2010 to June 2011). The total take by the state on a limited set of what we buy was $6.3 billion.

In contrast, the taxes on individual income was $4.6 billion. Sin, in the form of alcohol, tobacco, and wagering, brought in only $1.2 billion. Together these three activities (working, consuming and sinning) provided $12.1 billion or 85 percent of the state's tax revenue.

These tax dollars, however, made up only 54 percent of the state's total revenue of $26.5 billion. Another 35 percent was received from the federal government with the final 11 percent derived from miscellaneous fees, licenses, permits, etc.

Is this the right mix? That's an unanswerable question. It is deemed the feasible mix as of 2011 by the General Assembly and the administration.

What does the state do with its money? Much of it is sent to localities to be spent according to rules established by the state. For example, $7.6 billion is budgeted for local K–12 schools. This appears to be generous, but the funds must be spent in the manner state prescribes.

There is wisdom here, if the local schools boards are corrupt, ignorant or incompetent. Since schools are dependent on state–limited property taxes, there is little room for local discretion in spending and hence in educational services. Should there be such freedom or should each public school child be subjected to the same quality education?

What if schools and other local government units enjoyed a flow of revenue that was unrestricted? Would it be squandered by boards and councils seeking their own personal enrichment? If so, we do have means to remove such public servants.

The presumption of stupidity or veniality by government officials is a condemnation of local voters. If the legislature and the governor want better voters, they ought to spend some money on engaging and educating citizens in governmental processes. Voter ignorance leads to indifference and absence from the polls.

Opinions are solely the writer's. Mortong Marcus is an independent economist, speaker, and writer formerly with IU's Kelley School of Business.