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January 9, 2013

BRADNER: Will Pence find budget negotiation too taxing?

INDIANAPOLIS — Incoming Gov. Mike Pence wants Indiana lawmakers to phase in a 10 percent cut in the state’s income tax over the next two years.

He’s probably not going to get exactly what he wants.

The Indiana General Assembly kicked-off its four-month, budget-writing legislative session Monday, and as the session opens, the biggest political question is whether Pence will achieve one of his top campaign priorities.

Upon first glance, it would seem the answer should be yes.

He’s a Republican, and his party just captured supermajorities in both the House and the Senate, giving them enough seats to pass their agendas whether or not Democrats even show up.

Also, Indiana is expecting to see its tax collections grow by about $1.2 billion over the next two years — enough to cover the $750 million or so price tag of Pence’s tax cut and still increase spending in some areas.

So why might lawmakers not give Pence the major political victory that he wants to kick off his term?

That’s a complicated question with a number of answers. Here are some of them:

Nondiscretionary spending

Now that President Barack Obama’s health care law is on the books to stay, states have to cope with some additional costs — and the notion that by declining to set up its own health insurance exchange, Indiana can do much to dodge those costs is little more than wishful thinking.

Whether states expand Medicaid or not, individuals who qualify for the program under current law but aren’t signed up for it will enroll starting in 2014 because of a "woodwork effect" forced by the individual mandate, according to Milliman Inc., the state’s health and human services actuary.

Indiana might also have to increase the amount it pays health care providers to treat Medicaid recipients, because of the influx of new customers, according to Milliman.

The Medicaid expansion that Obama’s law envisioned, which Republican lawmakers might or might not opt to block, actually wouldn’t cost much when compared to the "woodwork effect" and changes to reimbursement rates. So, again, the idea that Indiana could dodge higher costs by declining to participate is just wishful thinking.

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