GUEST COMMENTARY: Trickle-down tax cut fever is a bipartisan illness

2013-05-28T00:00:00Z GUEST COMMENTARY: Trickle-down tax cut fever is a bipartisan illnessBy Shaw Friedman nwitimes.com
May 28, 2013 12:00 am  • 

After the Republican-dominated Indiana Legislature shoved through a 5 percent state income tax cut as a compromise gesture to new Gov. Mike Pence, media outlets like The Columbus Republic rightly termed the tax cut “silly.”

For ordinary families, the tax cut means a savings of a buck a week now, growing to a lousy $2 a week by 2017.

Though touted by the new governor with an almost religious fervor as a means of spurring job creation, we need to remember that it was the Democratic nominee for governor, John Gregg, who started this tax cut nonsense last summer.

That’s right. Even though most Democrats (and a majority of Hoosiers for that matter) agree with the proposition that investments in education and infrastructure are the best way of creating new jobs, it was Gregg who broke with his own party and defied his own pollsters when he proposed cutting the already anemic amount Indiana collects in corporate income taxes, which would have cost the state $500 million at the time.

Then, while county highway departments and local street departments were patching potholes and straining under the weight of tax caps and reduced funding, Gregg went on to propose eliminating the motor fuel tax of 18 cents a gallon that generates $800 million per year for our roads and bridges.

Eric Bradner, of the Evansville Courier, reminds us in a recent column it was Gregg who fired the first shot in the tax cut wars back in the campaign summer of 2012, spurring then-candidate Pence to counter with his own proposed reduction in the state’s income tax from 3.4 percent to 3.06 percent. That income tax proposal became a central theme of the Pence campaign, and the new governor was then wedded to it as gospel in his 2013 legislative program.

Never mind that most Hoosiers know better. Even Gregg’s own pollster – Benenson Strategy Group – told him in a March 2012 poll that Indiana voters by a margin of 57 percent to 37 percent favor investments in education as a job creation strategy over more corporate tax cuts.

Both Gregg and Pence continue laboring under discredited trickle-down theory which says that corporate or personal income tax cuts will magically lift our sputtering economy.

Our governor even went so far as to declare shortly before the session ended that Indiana risked losing the “jobs war” if lawmakers failed to enact his half-billion dollar personal income tax cut. When legislators decided to shrink his proposed tax cut in half, he declared victory and went home without letting us know if the "jobs war" was still in jeopardy.

The white paper issued by the governor’s staff pointing to states without an income tax as booming conveniently neglected to mention that states like South Dakota, Alaska and Wyoming are doing well because of a tremendously growing energy sector that is heavily taxed.

Take a look at the data. It doesn’t support the Pence/Gregg notion that massive tax cuts will help spur our state’s economy. (Perhaps that’s why Republican realists like House Speaker Brian Bosma put the brakes on the governor’s proposed 10 percent income tax cut.)

The Center on Budget and Policy Priorities, a Washington, D.C., think tank, issued a study in March reviewing the experience of six states that enacted large individual income tax cuts between 2007 and concludes those states failed to earn any particular economic advantage.

Indeed, Arizona, Ohio and Rhode Island – states which cut their taxes since 2000 – all subsequently trailed national job and economic growth. Yes – Louisiana, New Mexico and Oklahoma – did exceed the averages, but what the center found was that oil and gas industry growth was responsible for nearly all those states’ gains.

Simply put, the study showed “tax cuts as a prescription for economic growth” is “not supported by the preponderance of the relevant academic literature.”

I’m sorry to burst the bubble of true-believin’ trickle-down tax cutters like Pence and Gregg, but there’s a better way to grow Indiana’s economy.

Indiana House Democrats, led by Minority Leader Scott Pelath, D-Michigan City, tried mightily during the session to have their colleagues listen, but to no avail. Turns out the House Minority view is actually more in tune with where most Hoosiers stand these days, according to polls like the December 2012 Otis Bowen Center for Public Affairs survey.

As the Times reported on April 21, “Pelath believes most Hoosiers would rather that money (from the income tax cut) be put toward improving the state’s schools and roads, reducing the cost of higher education, expanding access to Medicaid, protecting the environment and other functions of state government neglected under former Republican Gov. Mitch Daniels.”

Let’s face it: Daniels’ one-time tax credit of $360 million has gone back into Hoosier pocketbooks since January and hasn’t created one job. Our state unemployment continues limping along at around 8 percent, and WorkOne reported the state shed 11,000 private sector jobs in March.

Trickle-down with just more tax cuts, rebates or credits isn’t working. Indiana politicians in both parties need to cast off failed trickle-down economic theory and start listening to Hoosiers. Hoosiers have the smarts to understand that state government needs the resources to properly invest in our communities to help them grow and flourish.

The polling is clear – Hoosiers want investments in roads, bridges, schools and higher education that will create a well-educated, competitive workforce and a better quality of life. That’s how we can truly compete and win in the future.

Shaw Friedman, a LaPorte attorney, is former general counsel to the Indiana Democratic Party. The opinions are the writer's.

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