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February 10, 2013

EDITORIAL: Indiana tax strategy requires prudent, long-term approach

Proposed tax cuts need close scrutiny

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Hoosiers living in 2017, 2018, 2023, 2025 and beyond should be able to look back on any policy enacted by Indiana legislators in 2013 and say, “That idea made this a better place to live.”

Lawmakers must keep that long-term view in mind as they consider a 10-percent personal-income-tax cut pushed by Gov. Mike Pence.

With the tax cut as a highlighted element of his platform, Pence won November’s election, shifting him from more than a decade as a congressman in Washington to the governor’s job in Indianapolis. Fellow Republicans in the Indiana Legislature, who experienced the tumultuous budget-trimming during the recession that kept the state fiscally solvent, expressed skepticism last fall about Pence’s promise to cut taxes even deeper. Now that Pence has taken office, many remain unconvinced. The state is in position to restore funding for hard-hit K-12 education and neglected roads, they point out.

Pence is unfazed.

His proposed reduction in the individual income tax rate from 3.4 percent to 3.06 percent, over a two-year period, amounts to a $500-million drop in state revenue. Lawmakers wondering how Indiana can invest in its future through funding pre-kindergarten education and beefed-up vocational training in high schools — concepts Pence promotes — with a half-billion fewer dollars in state revenue are apparently missing his big-picture vision.

Such doubts “about having to choose between increased funding for schools or roads and doing tax relief” amount to a “false choice,” Pence said last week.

“I think lower income taxes mean more jobs,” he said, a byproduct that presumably offsets diminished state revenues. Evidence supporting that claim is murky.

Pence builds his case for the tax cut by citing similar plans in other states, such as Ohio, Nebraska and Louisiana. “We are in a competition. Indiana is in the pole position,” he told the Fort Wayne Journal Gazette, “but other states are not standing still.” With states dueling to attract prospective employers shopping for the location of a new factory or corporate headquarters, each must play to win in the race for the lowest tax rates, the thinking goes.

A Feb. 4 report in the Wall Street Journal — a national publication serving a broad corporate readership — took note of that trend, too. The story also connects dots to 2016, the next presidential election. Conservative governors of states with Republican-dominated state legislatures want to slash income taxes and government spending beyond the recession-induced cutbacks. Such tactics could impress voters in 2016 enough to reverse the GOP’s electoral fortunes and return a Republican to the White House. Kansas Gov. Sam Brownback bluntly told the WSJ, “My focus is to create a red-state model that allows the Republican ticket to say, ‘See, we’ve got a different way, and it works.’”

The story calls the strategy a “gamble,” while also pointing out the potential for Brownback, Pence and Louisiana Gov. Bobby Jindal to become 2016 Republican presidential candidates.

Regardless of its intent, the tax cut idea needs intense scrutiny in Indiana. The state’s vibrancy relies on more than low tax rates. Nearly 1 million Hoosiers lack the post-high school training to work in a high-tech industry. Fixing that problem alone requires more than minimal funding increases to public schools, colleges and workforce development centers. A better educated populace reaps benefits for decades. Kids entering pre-K classes this fall would graduate from college in 2032. Getting them there will require investment, every year along the way.

That same Wall Street Journal piece included a pragmatic quote from Indiana House Speaker Brian Bosma: “My encouragement to everyone is to look at long-term sustainability and not just an election cycle.” We concur.

 

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