EDITORIAL: Study options before tinkering with taxes

2014-01-02T00:00:00Z EDITORIAL: Study options before tinkering with taxes nwitimes.com
January 02, 2014 12:00 am  • 

Indiana Gov. Mike Pence wants to eliminate the personal property tax for businesses, perhaps paying for it by increasing county income taxes. He's also talking about a very modest state income tax break.

At the same time, Indiana's revenues haven't kept pace with expectations.

In December, Pence cut $57 million in state agency and university spending because revenues, especially from income taxes, weren't meeting expectations. The state also lowered its revenue forecast in December.

Pence's theory is that if taxes are reduced, the economy will grow and revenues will be higher than they would be if the taxes weren't cut. That has been GOP gospel since Ronald Reagan was in the Oval Office.

But which taxes should be cut, and at whose expense?

We appreciate Pence's eagerness to get Indiana's economy moving faster. But when it comes to additional tax cuts, this is not the time for impatience.

What's needed is not a series of immediate cuts, but rather a careful analysis of state and local revenue sources to determine how best to raise the money state and local government needs. Look also at the balance between encouraging economic development and overburdening citizens.

Put more simply, there's no free lunch. For every tax cut action, there's a reaction. It's time to see what those reactions would be, based on experiences in Indiana and elsewhere.

There are some tough public policy questions to answer. How much of the burden of financing government should be placed directly on the backs of individuals? How much should businesses be expected to pay? And which individuals should pay how much?

The Institute on Taxation and Economic Policy ranks Indiana among the 10 states with the most regressive overall tax policies. Because the state sales tax — the highest in the nation, tied with California — and the state income tax are both flat percentages, the poor pay a larger share of their income in taxes than do the wealthy.

A comprehensive study on taxation in Indiana should take that into account before coming up with recommendations on how to distribute the tax burden more fairly.

The Commission on State Tax and Financing Policy has taken steps in this direction, but there's more to be done.

Only when this comprehensive study is finished should the state start changing the tax structure. 

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