Hoosiers have the unique luxury of being the fiscal envy of the nation because of the sound policies of the last eight years. Rather than discussing which taxes to increase as they are in Kansas and other states, policymakers are talking about which tax to cut.
While other states weathered the recession storm of the last four years with tax hikes and deep cuts in education and other essential services, Indiana kept a steady hand on the wheel. With our “cut rather than tax increase” philosophy and by maintaining prudent reserves, unlike other states, we actually increased our bond rating to AAA and began funding out of balance pensions for police, fire, teachers and state employees.
What might not be realized by the casual observer is that Indiana also has implemented a steady and prudent tax cut policy over the last decade.
Republicans successfully championed the “cut now, cap forever” property tax plan resulting in permanent property tax caps and the lowest residential property taxes in the nation. We repealed the job-killing inventory tax and “gross receipts” business tax, cut unemployment taxes on Hoosier employers, executed a 25 percent cut in corporate business taxes, and with Gov. Mitch Daniels passed the automatic taxpayer refund, which is returning more than $360 million to Hoosier families by April 15.
Hoosiers now enjoy the lowest cost per capita state government in the nation, the lowest residential property taxes in the nation, and what the conservative Tax Foundation rates as the best and lowest income tax system among the 41 states that have an income tax. In short, these prudent legislative policies are the reason Indiana is the fiscal envy of the nation. But this was not without hard work and quite a bit of pain along the way.
Prior to the legislative session, House Republicans outlined our budget priorities as continued fiscal integrity and lean government, a significant investment in roads and bridges because of the completion of the Major Moves program, and restoring the cuts to public education necessitated to keep the state in the black during the recession. The current House Republican budget restores the appropriation for public schools to the level it was four years ago, with a 2 percent increase in overall school funding the first year, and a 1 percent increase the following year. We also afford a significant investment in Indiana’s roads and bridges at the state and local level, in keeping with our philosophy of economic growth and the realization you can’t be the Crossroads of America with crumbling infrastructure.
Our version of the budget also takes a conservative approach to public projects by paying off long-term state indebtedness for construction projects and paying cash for several scheduled projects rather than loading our children up with future debt.
With respect to the Gov. Mike Pence’s income tax cut proposal, seasoned legislative leaders have urged caution for several reasons. First, in 1998, the last time the state’s reserves exceeded $2 billion, an income tax and property tax cut were both adopted which, when coupled with an unexpected economic downturn, quickly turned that surplus into a $1.3 billion deficit in a short six-year period. When Republicans regained the House majority, our first order of business was to fill that hole through cuts, and not the tax increase proposed by Gov. Daniels. It was painful and difficult, but sustainable in the long run since it avoided the wild shifts experienced in other states. The uncertainty of big shifts in one direction or another leads to uncertainty for job creators and Hoosier families alike. With looming federal mandates and a precarious national economy on the horizon, caution is needed.
In addition, the Tax Foundation rates Indiana’s income tax as the best in the nation among the 41 states that have income taxes. It is flat (not progressively higher for higher earners) and has limited deductions so everyone carries their fair low share.
On the other hand, Indiana is also cited as one of only 20 states that continue to tax Hoosier families through a “death tax” which places in an untenable position the family farms, family businesses and Hoosiers who have managed to scrape together a lifetime of savings. While a slow phase-out of the inheritance tax is under way, the immediate elimination of that tax would help Hoosier families, eliminate a layer of state government and the need for private sector accountants and attorneys who must be employed by Hoosiers upon the death of a loved one. Eliminating the inheritance tax today is the smart fiscal move.
I was uncomfortable being on the opposite side of Gov. Daniels’ 2005 tax increase proposal, and I am not very comfortable being on the opposite side of Gov. Pence on the income tax cut proposed in 2013. But comfort isn't the point; long-term vision is.
Gov. Pence points to Kansas as a model for his tax cut proposal, and I encourage you to look online at the fiscal instability resulting from Gov. Sam Brownback’s tax cut.
Hoosiers, rest assured: There will be a tax cut this year, but it must be the right tax, in the right way, at the right time. You deserve it.